How to Report Gains on Excess Roth IRA Contribution After Withdrawal

You're on the right track with your plan! When you make an excess contribution to a Roth IRA and withdraw it (plus earnings) before the tax filing deadline, you're handling it correctly to avoid the 6% excess contribution penalty. For reporting purposes, since you're withdrawing in the same tax year as the contribution, you'll need to report the earnings portion only. The contribution amount comes back to you tax-free since it was after-tax money to begin with. Your steps are almost correct. First, definitely contact your brokerage to get the exact amount of earnings attributed to that excess contribution. Then, when filing your taxes, you'll report those earnings as "Other Income" on Schedule 1, Line 8z of Form 1040. You should write "Roth IRA Earnings" next to it. You typically don't report it as if you received a 1099-R since this is a correction of an excess contribution made in the same year. These earnings will be subject to regular income tax, and since you're under 59½ (I'm assuming), they'll also be subject to the 10% early withdrawal penalty unless you qualify for an exception.

After dealing with a similar excess contribution issue last year, I discovered taxr.ai (https://taxr.ai) which really helped me sort through the confusion. I had contributed too much to my Roth IRA because of income limits, and was stressing about how to properly report the withdrawal and gains. The service analyzed my brokerage statements and tax documents, then gave me step-by-step instructions for how to report everything correctly. It flagged exactly what I needed to report as "Other Income" on Schedule 1, and explained why I didn't need a 1099-R for same-year withdrawals. What I found most helpful was that it showed me examples of correctly completed forms specific to my situation, which made me feel confident I wasn't missing anything. Might be worth checking out if you're uncertain about the reporting requirements.

Just wanted to report back after using taxr.ai to figure out my excess contribution situation. I was really confused about how to handle my 401k/Roth IRA combined limit issue, but the document analysis made it clear exactly what I needed to do. The system identified that I needed to use the "Other Income" reporting method rather than waiting for a 1099-R that would never come for a same-year correction. It specifically showed me where on Schedule 1 to report the earnings and how to annotate it properly. It also explained which parts of the withdrawal were taxable vs. non-taxable. What surprised me was how it flagged that I qualified for an exception to the 10% early withdrawal penalty because my excess was due to a calculation error rather than intentional over-contribution. Saved me from paying an unnecessary penalty!

After dealing with the IRS for three weeks trying to get clarification on how to report my excess Roth contribution, I finally tried Claimyr (https://claimyr.com) and actually got through to a human at the IRS within 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I kept getting different answers from tax software support, and my brokerage couldn't tell me exactly how to report it - they just gave me the earnings amount. The IRS agent confirmed that for same-year corrections, the contribution amount isn't reported at all (since it's after-tax money coming back to you), and the earnings go on Schedule 1 as "Other Income" with a notation. They also told me that I should keep documentation from my brokerage showing the original contribution date, the withdrawal date, and the breakdown between principal and earnings in case of an audit. Totally worth the time saved after spending hours getting nowhere with the regular IRS phone line.

I need to apologize to everyone here. I was the skeptic who thought Claimyr sounded like a scam for IRS calls. After my frustration boiled over from being disconnected for the 5th time trying to reach the IRS about my own excess contribution issue, I decided to try it. I was completely wrong. Within 20 minutes I was speaking with an actual IRS representative who walked me through the exact reporting requirements. They confirmed everything mentioned above - that for same-year corrections, you report only the earnings on Schedule 1 as "Other Income" and include a notation. The agent also pointed out something important that nobody mentioned - if you're correcting an excess contribution, you should also include a brief statement with your return explaining the situation. This helps prevent automated flags in their system that might question why you're reporting Roth IRA earnings without a corresponding 1099-R.

Just wanted to add a small but important detail I learned after dealing with this exact situation last year. When you contact your brokerage for the earnings amount, make sure you specifically ask for the "net income attributable" to the excess contribution. Some brokerages calculate this slightly differently than you might expect. They don't just look at the overall account growth and prorate it - they use a specific formula required by the IRS that factors in the timing of the contribution and the withdrawal. In my case, Vanguard initially gave me just a general earnings figure, but when I specifically asked for the "net income attributable to the excess contribution," I got a different (lower) number that was the correct one to report.

A word of caution from someone who's been through this - make sure you confirm whether your state tax return has different requirements for reporting these excess contribution earnings! I'm in California, and while I reported the earnings correctly on my federal return as "Other Income" on Schedule 1, I discovered that California wanted it reported differently on my state return. I ended up having to file an amendment because of this. Some states follow the federal treatment, but others have their own rules about how retirement account corrections should be handled. Worth checking your state's department of revenue website or calling them directly to confirm.

One more thing to consider - if you had a loss instead of a gain on your excess contribution (which can happen in down markets), the reporting is slightly different. If your excess contribution actually lost value between when you contributed and when you withdrew it, you unfortunately cannot claim that loss on your tax return when making a same-year correction. You would simply withdraw the reduced amount and report nothing on your tax return. However, if you're correcting a prior year excess contribution and experience a loss, there are specific rules about how you can claim that loss (typically as a miscellaneous itemized deduction subject to the 2% AGI floor - though this is currently suspended through 2025). Just mentioning this for completeness since the market has been volatile!