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Report gains from an excess contribution on Roth IRA

BeKindtoOneAnother

Just realize this year while getting ready to file that I couldn't contribute to my Roth IRA on 2025. I have had the excess ang gains returned. How can a declare my gains this year since I haven't file my taxes? Is there a way to do this to avoid any amendement. Fidelity will send a tax form until next year. Thank you.

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Accepted answers

MatthewD

Hello BeKindtoOneAnother,

Since you had the excess and earnings returned before the tax filing deadline, this is considered a "timely correction," which means you can report the earnings on your 2025 return right now and avoid filing an amendment later.

Here's how it works: even though Fidelity won't send the 1099-R until 2027, the earnings on the returned excess are taxable income in 2025 — the year the contribution was made. The 1099-R you'll receive next year will have distribution code "P" (meaning the amount is taxable in the prior year) and likely "J" (if you're under age 59½). The good news is you don't have to wait for that form to file.

To report the earnings now, you can manually enter a substitute 1099-R in our software using the amounts Fidelity calculated for you:
1. Go to the Income section and select 1099-R
2. Enter the total amount distributed (excess + earnings) in Box 1
3. Enter only the earnings amount in Box 2a (the taxable portion)
4. Enter distribution code PJ in Box 7

A couple of important notes:
- The returned excess contribution itself is not reported as income — only the earnings are.
- The 10% early withdrawal penalty generally does not apply to timely corrective distributions made before the tax deadline.
- You'll want to have the exact earnings figure from Fidelity before you file. They should have provided that calculation when they processed the return of excess.

TaxMorgan

The software will prepare a Form 8606 to be included with the return if it is needed. Form 8606 is not a form that you enter in the software, but one that the software creates from the entries made.

GeorgeM

Hello BeKindtoOneAnother:

Yes, you can report the excess contribution and earnings to your Roth 401(k) using the same method suggested by MatthewD. However, if you elect to report the excess contribution and earnings on your 2025 tax return (rather than waiting until next year when you receive your 1099-R), use code 8 in Box 7, rather than P and J (the Code J relates to an early distribution from a Roth IRA, with no known exception, and in most cases under age 59 1/2).

Code 8 in Box 7 denotes that the excess contributions plus earnings are taxable in 2025, which is the tax year during which your excess contribution plus earnings took place. Code P in Box 7 denotes that your excess contribution plus earnings are taxable in the prior year—tax year 2024—which is not the case with your situation.

GeorgeM

Hello BeKindtoOneAnother:

Yes, because you will have already reported the excess contribution and earnings on your tax return for 2025, there won’t be anything else to report that has not already been reported.

Given that the excess and your earnings have already been reported on your 2025 tax return, when you get your Form 1099-Rs in early 2027, you can ignore the Codes J and P on the 1099-Rs, but otherwise keep the 1099-Rs for your records.

All comments

MatthewD

BeKindtoOneAnother

https://community.freetaxusa.com/discussion/comment/7028#Comment_7028

Thank you so much! Just one last question. Fidelity mentioned form 8606, but I couldn't fine much information on this. Do I need to do 1099-R and also 8606?

TaxMorgan

The software will prepare a Form 8606 to be included with the return if it is needed. Form 8606 is not a form that you enter in the software, but one that the software creates from the entries made.

BeKindtoOneAnother

https://community.freetaxusa.com/discussion/comment/7049#Comment_7049

Thank you. I had the same thing happen with my Roth 401K, I already had returned the excess and gains. Would this be the same case as to select 1099-R and code PJ in Box 7? Or is it treated differently because is a Roth 401K?

GeorgeM

BeKindtoOneAnother

https://community.freetaxusa.com/discussion/comment/7075#Comment_7075

Thank you so much! Would this mean that next year (2027) when I receive both 1099-R (Roth IRA and Roth 401K) I can just "ignore" the forms and don't file them in my 2026 taxes?

GeorgeM

BeKindtoOneAnother

https://community.freetaxusa.com/discussion/comment/7111#Comment_7111

Thank you!

bmobster

https://community.freetaxusa.com/discussion/comment/7028#Comment_7028

Hi Matthew,

I'm dealing with the same issue. I've manually filled out the page for the 1099-R based on your guidance, but what should I put on the question that later asks, "You told us that you received a return of an IRA contribution before April 15, 2026. Please explain the details of this returned contribution."?

And to confirm, when I receive the 1099-R from Fidelity next year, I can just ignore it/keep for my records?

MatthewD

Hi bmobster,

I recommend that for an explanation you enter something along the lines of, "return of excess contributions and earnings."

When you get that form next year, you need to enter it into your 2026 tax return. You may also need to amend your 2025 return to report any earning reported on the 1099-R.

bmobster

https://community.freetaxusa.com/discussion/comment/7653#Comment_7653

Thanks, Matthew - I thought the point of reporting the earnings on my 2025 return now was to prevent having to file an amended 2025 return next year though?

JanaA

Hello bmobster! The whole point of reporting the earnings now on your 2025 return is precisely to avoid needing an amendment later, and that is still the case.

When you receive the 1099-R from Fidelity next year, it will have distribution code P, which tells the IRS that those earnings are taxable in the prior year, meaning 2025. Since you will have already reported those earnings on your 2025 return, there is nothing left to report on your 2026 return. You do not need to enter that 1099-R into your 2026 taxes, and you should not need to amend your 2025 return either.

Just keep the 1099-R for your records when it arrives, but you can otherwise set it aside. As long as the earnings amount you reported on your 2025 return matches what Fidelity shows on the form, everything is accounted for and you're all set.