Withdrawn the excess IRA contribution, but not the earnings - Need advice

Hello ukua13mr20! Since you withdrew the $7,000 contribution but not the earnings before filing your 2024 return, the correction was not fully complete. Generally, to avoid the 6% excise tax, both the excess contribution and any earnings on it must be withdrawn by the tax filing deadline (including extensions). Because the earnings remained in the account, you will likely need to address the following across multiple tax years.

For your 2024 amended return, you will generally need to file a Form 1040-X to include the 1099-R you received (for the $7,000 withdrawal) and attach Form 5329 to report the excess contribution and calculate any 6% excise tax owed on the earnings that remained in the account.

For tax year 2025, if the earnings remained in the account through the end of 2025, a Form 5329 on your 2025 return may also be required to report the 6% excise tax for that year.

For tax year 2026, the earnings you withdrew today will be reported on a new 1099-R that your custodian will issue in early 2027. That amount will generally need to be included as income on your 2026 tax return, and depending on your age, an early withdrawal penalty may also apply.

To amend your 2024 return in FreeTaxUSA, log in to your account, go to the Account menu, and select "Amend Tax Return." From there you can add the 1099-R and the software will guide you through Form 5329. Information about the excess can be entered by selecting the Deductions/Credits tab and then IRA Contributions from the drop-down menu.