New to IRA, need assistance w/ excess contribution

Jdazed
Jdazed Newcomer
in Filing my taxes

I opened an IRA account late 2024 and had contributed for 2024 in 2025. I haven’t moved 6000 of my contribution as I was still trying to figure where to invest it. As i was filing my 2024 tax return I found out i contributed in excess and withdrew the excess from IRA account before filing my 2024 tax return. I realize as I’m now working on the 2025 tax return that I was suppose to file an excess contribution on Fidelity (which I didn’t I just withdrew the excess amount myself). I received a 1099-R for 2025, I think its basically counting as another taxable income in 2025. How do i fix this so it doesn’t count as taxable income?

Answers

  • Te_ariki
    Te_ariki Level 4

    I would start by filling out the return of excess on fidelity. It's in the link below. It also has other options to look at like if you wanted to apply the contribution to future years.

    https://www.fidelity.com/retirement-ira/excess-ira-contributions

  • JanaA
    JanaA image
    Hello Jdazed! Thank you for the detailed explanation -- this is a situation that trips up a lot of people new to IRAs, so you're not alone.

    The good news is that when you withdraw an excess IRA contribution before the tax filing deadline, the returned principal (the excess amount itself) is not taxable income. Only any earnings that grew on that excess while it was in the account would be taxable. So the full withdrawal amount should not be counting as income on your 2025 return.

    The key is the distribution code in Box 7 of your 1099-R. Since you made the contribution in 2025 (even though it was designated for 2024), the 1099-R should show Code 8, which means any earnings are taxable in 2025 -- the year the contribution was actually made. If the box shows Code P instead, that would mean the earnings are taxable in the prior year (2024), which would require amending your 2024 return. If the code is 1 (early distribution), that could mean the withdrawal was treated as a regular early withdrawal rather than a return of excess, which could trigger a 10% penalty.

    To enter the 1099-R in FreeTaxUSA, go to the Income section and select Retirement Income (1099-R). Enter all the information exactly as shown on your form. The software will use the distribution code to determine how much, if any, is taxable.
    Jana

Categories