A timely correction is a withdrawal before the tax-filing deadline (plus extensions) in the year you made the excess contribution
When you make a timely correction, any earnings or losses in your IRA need to be factored into the withdrawal and reported to the IRS. Two important facts to understand:
- If your account INCREASED in value after your excess contribution, any earnings on your excess contribution must be calculated, withdrawn, and reported as taxable income in the year the contribution was made. Keep in mind: If your IRA increased in value, the amount you need to withdraw will actually be higher than the amount you contributed.
- If your account DECREASED in value after your excess contribution, the amount you withdraw will be less than your original contribution amount.
View earnings calculation
Note: If you are withdrawing a non-deductible contribution to a Traditional IRA, you MUST make a timely correction before the tax-filing deadline (plus extensions) in the year the excessive contribution was made.
Tax reporting of a timely correction
Timely corrections must be reported in the year of the withdrawal on IRS Form 1099-R (Box 7 will let the IRS know whether you're making a correction to a contribution made in the current or previous calendar). Any earnings on your withdrawal will be reported as taxable on the 1099-R. For more information on how to report a timely correction, see the instructions for IRS Form 1040, 5329, and 8606.
Make life easier on yourself
When you start a return of excess with Fidelity, we'll do the math for you, calculating any earnings or losses, creating special tax reporting, and distributing the appropriate return amount to you.