Reporting income on excess contribution to Roth IRA

CSW
CSW Member Posts: 1 Newcomer
in Income

I have seen similar posts, but that do not answer my question about reporting income on excess contribution using FreeTaxUSA softwared.
---When working on our 2025 return (in February 2026) we realized our 2025 MAGI income exceeded limits for Roth IRA contributions.
---We notified American Funds and they returned the Excess Contribution and related earnings. They told us how much was income vs distribution for 2025.
---The distribution occurred in 2026 so American funds will not general a 1099-R until next year.
--- I understand reporting in 2025 will mean I do not need to pay 6% penalty fee. IRS simply says I need to report the income, but I'm don't understand how to do this in thesoftware.

—Online advice says to create a dummy 1099-R with distribution in 1a , income in 2a, with and code PJ.

Will this prompt FreeTaxUSA to correctly calcuate the taxes we need to pay and not apply any fee? If so, what year do I put on the 1099R? (2026?) To be clear, I am asking how to make the software do right calculations, I am not trying to make it seem like I actually got a 1099-R.

Comments

  • GeorgeM
    GeorgeM FreeTaxUSA Agent Posts: 73 image
    Hello CSW:

    Yes, you can report the excess contribution to your Roth IRA and the earnings by creating a “dummy” 1099-R. 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.

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