2024 Roth IRA excess removal before deadline, how to file in free tax usa

taxconfused
taxconfused Member Posts: 3 Newcomer
in Retirement Income

I contributed $7000 Roth IRA in Aug 2024, and then April 1, 2025 I removed entire account including all the funds out since I realized I didn't have earned income. Feb, 2026, I received 1099 R, and the amount is $6800 due to investment loss.

Box 1 $6800

Box 2a: $0

Box 7: PJ

Now I ran into issue with using Free Tax USA to input this information correctly. I want to know what to do when the software asks:

1) Did you have any excess IRA contributions in 2024? YES or NO. Is it NO, since I removed everything on time?

2) Do i need to file 5329 form? If so, what need to be done to trigger that?

3) why I input this 1099 R Box 1 on Income portion, and nothing shows up on 1040 line 4a.

4) the Loss can't be deductable, but I wont owe 6% penalty tax of the $200 loss right? not like I still have $200 in it.

Thanks

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Answers

  • MatthewD
    MatthewD FreeTaxUSA Admin, FreeTaxUSA Agent Posts: 850 image
    Hi taxconfused,

    Thanks for posting your question in the community. Others have done the same thing.

    Because you removed the entire excess contribution before the April 15, 2025 filing deadline, the IRS treats that contribution as if it was never made. Here's how to handle each of your questions:

    1) Did you have excess IRA contributions in 2024? Answer NO. Since you withdrew everything on time, there is no excess contribution to report. The IRS considers it corrected.

    2) Do you need to file Form 5329? No. Form 5329 is only required if the excess was NOT removed by the deadline. Since you pulled it out on April 1, 2025 — before April 15, 2025 — you're in the clear. No 5329 is needed.

    3) Why doesn't anything show on 1040 line 4a? That's actually correct behavior. The "P" in code PJ means any earnings would be taxable in the prior year (2024), but your Box 2a is $0 — meaning there were no earnings, only a loss. Since there's nothing taxable, nothing flows to line 4a. You still need to enter the 1099-R in the software to document the distribution, but the taxable amount is zero.

    4) Will you owe the 6% penalty on the $200 loss? No. The 6% excise tax only applies to excess contributions that remain in the account past the deadline. Since you removed everything on time, there is no penalty. The $200 loss is also not deductible, but you don't owe anything on it either.

    To summarize. Your net tax impact from this 1099-R should be zero. Just enter it as-is in the software and the numbers should work out correctly.
  • taxconfused
    taxconfused Member Posts: 3 Newcomer

    Thank you so much! I guess I can understand 1040 line 4b (taxable income) is 0, but why 4a (distribution) is also 0? Then where in 2025 tax form would reflect the $6800 distribution that I received on 2025 1099R?

  • MatthewD
    MatthewD FreeTaxUSA Admin, FreeTaxUSA Agent Posts: 850 image
    edited March 12

    Hi taxconfused,

    Good question. A distribution only happens after a qualifying contribution. Since there technically was no contribution, there can't be a distribution.

  • taxconfused
    taxconfused Member Posts: 3 Newcomer

    So even the 1099 box 1 has distribution, this is not the same distribution that 1040 4a is asking, which is a qualified distribution?

  • MatthewD
    MatthewD FreeTaxUSA Admin, FreeTaxUSA Agent Posts: 850 image
    Hi taxconfused,

    You are right that it is technically a distribution, but the Code JP really indicated a "return or withdrawal" of any excess contribution and is not treated as a regular distribution. However, if the "distribution" has no earnings (but is a loss) then nothing will be reported on the current year return on line 4a or 4b.

    However, you will likely need to file an amended 2024 return to show that the contribution was made and withdrawn by the deadline.

    Had there been earnings in 2025 (when the withdrawal was initiated), for example it was $7,025, then you would have a taxable amount on Line 4b of $25.

    I hope that clarifies your concern. You may want to contact Support and have them take a look at your current year and prior year returns.

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