Excess Roth contribution 2023 – removed with earnings in 2025
Client contributed $3,000 to his Roth in 2023. He exceeded the income limit to make this contribution and realized it when he prepared his return. He paid the 6% excise tax in 2023. He requested a return of the excess plus earnings in 2025. The earnings were $1313. Therefore, he received $4,313 in 2025. Reading through this forum, I understand, he should have only requested the $3,000.
- Is there a way to correct the return of the earnings or is it just done at this point?
- If it is done, when do the earnings become taxable?
- Will he receive a 1099- with codes PJ for the $3,000 and another with $1,313 with code J?
- Is #3 completely wrong and something else will be reported? Custodian is not willing to assist with this information.
- Does he amend 2023 at this point?
Thanks in advance for any response.
Permalink Submitted by Alan - IRA critic on Tue, 2025-03-25 15:24
If less than 60 days has passed since the distribution of 4313 and he has a rollover available, the earnings can be rolled back to the Roth IRA.
The distribution will not be coded as a return of excess because the due date for 2023 had passed. It will be coded J on the 1099R unless the Roth is qualified (age 59.5 and 5 years). But if the Roth contains a regular contribution balance of at least 4313, the distribution will not be taxable and is treated as coming from the regular contribution balance.
Unless client can absorb the excess in 2024 on Form 5329 (which would have made the distribution unnecessary and the entire 4313 could be rolled back, a 6% excise tax will also be due on a 2024 5329. While the excess was removed in 2025, a 2025 5329 will be required to show that the excess was removed, and Form 8606 will be needed for 2025 to report the distribution unless the Roth was qualified when the distribution was made.
If the 2023 excise tax was paid on Form 5329, there is no need to amend the 2023 return. The 2024 5329 can be filed with the 2024 return, but if that return has now been filed, a 2024 5329 will have to be filed with a 1040X to report the 2024 excise tax.
This situation could have been prevented if the excess was returned by the 2023 extended due date of 10/15/2024. No excise tax would have been due, only ordinary tax on the amount of gains distributed.