Excess Roth IRA Contribution Removal for tax years 2022 & 2023

The proper way to file Form 5329 is attached to Form 1040-X.
Form 5329 can be mailed by itself only when you are otherwise not required to file a tax return.

If you are paying a penalty then amounts are changing and you have to adjust your tax.
The new or changed forms would be
Form 5329
Schedule 2 Line 8
The penalty goes on 1040-X Line 10.
Do not include your old 1040 nor your revised 1040 because the Form 1040-X reflects any changes there and becomes your new tax return.

Done this way, you sign 1040-X, not 5329.

@msv1 

Thanks very much for a detailed reply. However, I don't understand why paying penalty would affect my taxes.  Excess Roth IRA Penalty is considered excise tax. It does not require adjustment to my taxes any way. So, my question is that is there any violation of IRS regulations in just sending completed 5329s with penalty payments without amending the tax return?

Further, what about 2023 tax return. Do I need to amend my 1040 for 2023 before Oct 15, 2024 or file everything next year with my 2024 taxes after I receive 1099Rs for myself and my wife?

Thanks again for your time and patience!

You are correct that you do not need to file a Form 1040-X unless you have other changes to your tax return.  Each tax year uses a different form 5329, so make sure you use the correct one (2022, in your case). 

Wait until you receive the 1099-R forms before you amend your 2023  tax returns. The 1099-R forms you receive will (hopefully) be coded properly and likely won't require you to amend.  Since it will be a non-taxable return of your excess contribution plus your growth, only the growth will be taxable.

Another option, but it's too late if you already removed the excess, would have been to reallocate the excess to the 2024 tax year.  In the future, it might be worth discussing this option with your broker. In that case, only the growth would have needed to be removed. 

[Edited 5/10/2024:8:57 AM PST]

On Form 1040-X,

Line 8 "Tax" will not change

Penalty i.e. Form 5329 goes on line 10.

Therefore Line 11 "Total Tax" will increase.

Amount you owe Line 20 depends on Line 11.

Form 1040-X becomes your new tax return.

--

I can only refer you to the INSTRUCTIONS:

When and Where To File
File Form 5329 with your 2023 Form 1040, 1040-SR,1040-NR,
or 1041 by the due date, including extensions, of your tax return.
If you don’t have to file a 2023 income tax return, complete
and file Form 5329 by itself at the time and place you would be
required to file Form 1040, 1040-SR, or 1040-NR. If you file Form
5329 by itself, then it can’t be filed electronically. Be sure to
include your address on page 1 of the form and your signature
and the date on page 2 of the form. Enclose, but don’t attach, a
check or money order payable to “United States Treasury” for
any taxes due. Write your social security number and “2023
Form 5329” on the check. For information on other payment
options, including credit or debit card payments, see the
Instructions for Form 1040 or the Instructions for Form 1040-NR,
or go to IRS.gov.
Prior tax years. If you are filing Form 5329 for a prior year, you
must use the prior year's version of the form. If you don’t have
any other changes and haven’t previously filed a federal income
tax return for the prior year, file the prior year's version of Form
5329 by itself (discussed earlier).

@msv1 

"only the growth will be taxable and it will be reported on 2024's tax return."

This is incorrect.

positive earnings allocable to a 2023 excess removal go on the tax return for the year of the contribution, 2023.

You will get a 1099-R with code "P" informing you to amend your 2023 tax return.

@KarenL 

I edited out the "wiggle room" comment because I don't think there is any.

@msv1 

Thanks to @KathyL and @fanfare for detailed and helpful responses. Since I have to pay 6% penalty on 2022 excess contributions, I was originally thinking, in my own little wisdom, about just doing forms 5329 (2022) for both me and my wife and hopefully be done with it as there was no other change for 2022. However, my broker thrown a caveat in this whole situation which has confused the heck out of me. My broker decided to withhold 10% of my wife's excess withdrawal as federal withholding. However, for mine, there was no withholding per the broker transection. So how does that change the game plan as the federal withholding for my wife will be reported on 1099-R in 2025.  So, it makes it more confusing (just for me). 

I do appreciate you all being patient with my questions as I am totally new to this and find the process overly confusing & stressful especially when breaking up growth/earnings etc. for different tax years. So any instructions broken up into steps as you would give to a 5th grader would be helpful. My questions are as follows: 

Tax Year 2022: 

1. So, under the circumstances, should I go ahead and do 5329 by itself (or amend existing return with 1040X as suggested by Fanfare)? which is preferred? How do I account for the tax withholding from my wife's 2022 excess contribution removal that would probably show up on my 1099-R in 2025. 

2. Would my 2022 turbo tax help me walk through this process?

Tax year 2023:

My original plan was to amend 2023 before Oct 15, 2024 based on my recent removals (and not wait for 1099-R for me and my wife) using TurboTax (which I assume will generate 1099-R), because I was told that If I don't do it before Oct 15, 2024, IRS may penalize me with 6% or other penalties. 

So, I continue to struggle with questions for tax year 2023 also which are as followings.

1. is it correct that I am subject to penalties etc. if I don't account for 2023 removals by amending 2023 tax return by Oct, 15, 2024? If so, what is the best recourse for 2023 tax year filings/amendment in the absence of 1099Rs that will be received next year in 2025.

2. Regardless of growth/income none of my tax liabilities change due to substantial short term/long term loss carryover on my taxes. Does this fact change anything for the process/filings, I have to do for 2023 taxes

2. For me there would be no age penalty for 2023 excess removals/gains however small removal of $207 from my wife's account may have small gains of $30-24 requiring me to pay 10% age penalty which will be under $10.  Do I still have to do 5329 for her for that small amount?

3. Again, how can I do this with turbo tax.  (step instructions would be appreciated). I wasn't aware that turbo tax allows for amended tax returns to be filed electronically but if it does for small fee, I will prefer to do that. 

I thank you all for helping. Any instructions broken into steps would be appreciated. 

There are two cases and they are handled differently;

Before tax due date (including extensions)

after tax due date (including extensions);

----

return of excess contribution:

before tax filing date including extension: positive earnings allocable to the excess are included in income on 1040 Line 4b for the year of the contribution. negative earnings are ignored; in any case, for purposes of basis, consider the original requested amount as returned.

Note: You must have a) filed by tax day, or b) requested an extension of time to file by tax day to take advantage of the Oct 15 deadline.

positive earnings removed are no longer penalized 10% if you are under age 59 1/2. (eliminated in 2023)

after tax due date including extensions: you distribute the excess amount being carried forward on 5329,
(or offset it with currently allowed contribution) .
An amended return may be needed supplying that Form 5329 since there is a 6% penalty per year on accumulating excess contributions .
Earnings stay in the Roth account.

Consult your custodian to obtain the correct removal form for each case.

--

you probably used the incorrect form or your broker did not understand what you wanted.

If tax withholding is shown on a 2024 1099-R code "P" you would get that tax back by amending 2023 tax return.

Generally tax is not withheld because your contribution is not taxable when returned.

Last month I worked with another forum user in the same situation. I tried for a long time to explain this. I don't think he was attentively reading my replies.

My recommendation was to file prior year amended returns on paper, hand written using IRS.gov fillable PDF forms.

E-file of 2023 1040-X is still available.

--

How to make TurboTax do it is a completely separate topic.

Based on other forum posts, good results using TurboTax to amend is sporadic at best.

(of course, those who have no problem, do not post on the forum).

@msv1 

It appears there is also the issue of the amount of 6%penalty - how much is it and when exactly it needs to be paid The following are the facts and dates.

Tax year 2022 excess contribution My self - $7000 , Spouse 4450

My Excess of $7000 removed - April 24, 2024  

Spouse excess removed - May 10, 2024

So, do I have to pay 6% first with 5329 for 2022 and then again second time with 2023 amended returns even though they are being filed as we speak (before Oct 15, 2024)?

Additionally, For my 2023 excess contributions, my broker had me request separate corrective disbursements for amounts that were added in 2023, and Between Jan 1, 2024- April 15, 2024 to Roth IRA for Tax year 2023.

So they were removed as below -

Tax year 2023-excess removals -

For myself  (deposits made for "2023" in 2023) removed on  - April 15, 2024

For myself (deposit s made for "2023" in 2024 before April 15, 2024) removed - April 17, 2024

For spouse  (deposit made for "2023" in year 2023 before Dec 31st, 2023) - May 10, 2024.

I am not sure how this further complicates 2023 tax filing corrections. 

Please review my post above of ‎05-10-2024 8:10 PM.

the 6% applies to the second case only. see Form 5329.

also, you can search the forum for other posts on how to get the amendment via Turbotax,

including how to make up the anticipated 2024 Form 1099-R for entry now, either on 1040 if you did not file yet, or on 1040-X if you already filed 1040.

@msv1 

Please bear with me as I am trying to understand the problem and the potential solution the best I can. I have read your post of ‎05-10-2024 8:10 PM. I am working with an after-tax deadline (oct 15, 2023) situation (the second case). I will be paying 6% penalty by amending 2022 return (correct?). I'm doing that presently.  However, my confusion is related to when I amend 2023 return later this year (but before Oct 15, 2024). Am I paying 6% again with "2023 amendment" also or penalty paid with "2022 amendment" is the only time I pay the penalty? From your response mentioned above, it appears that I am done with penalties after amending 2022 return. I believe it to be the case as well.

So, in case if I am not paying the penalty again with 2023 amendment, my taxes for 2023 are not affected at all as you say 10% penalty is not there anymore, and my gains on the 2023 contributions removed are offset by my carry over losses. So if there is no change and I am not paying additional penalties, do I still have amend 2023 return. In such case, would it make sense to wait for 1099-R (with P designations) until next year. I will wait for your response. Thanks for your time and patience.

my confusion is related to when I amend 2023 return"

When did you e-File your 2023 tax return ? See a),b) above for the rule to take advantage of the Oct Deadline.

You are confused.

Oct is not the deadline to amend. It is the deadline to remove the excess plus earnings.

If you did not file by Tax day, and you don't have an extension, you missed the opportunity, and you cannot remove earnings on a 2023 excess. That would be bad. 

If you did file 1040 by Tax Day, and you removed earnings after Tax Day, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. (See Note: IRS Pub 590-A Page 30.)

The 6% penalty applies to case 2 only

"my gains on the 2023 contributions removed are offset by my carry over losses."

You are confused. There is no way to offset positive earning allocable to excess removal, you must report as 2023 income.

"would it make sense to wait for 1099-R (with P designations)"

if A) you already reported allocable earnings, or B) the earnings are negative, the 1099-R code P ordinarily would go in the circular file.

HOWEVER, if 1099-R shows federal withholding, it must be reported and  attached to the 1040-X to get your tax withheld back.

If you amend now , the withholding you report would be greater than the total currently seen by IRS. That would probably cause IRS to refuse to refund that withholding.

@msv1 

 I filed my 2023 taxes on time by April 15, 2023, deadline. Since I became aware of my excess contributions for 2022 and 2023 only a few days before that, I attempted to remove as much as I could based on my limited understanding. Here are the details of removals -

2022 contributions removed -

April 22, 2023 - self (contributions only with no fed tax withholding)

May 10, 2023 - spouse (contributions but broker decided to do 10% fed tax withholding and is not willing to correct it so far saying it can't be changed now)

2023 contributions removed -

April 15, 2023 - self (contributions for 2023 tax year made in 2023 + earnings tax withholding)

April  19, 2023 - self (contributions for 2023 made in 2024 before Tax deadline of April 15, 2023)

2023 excess for spouse for 2023 to be removed in next few days (this contribution was made by Dec 31, 2023)

So now, this is what I am understanding (and hopefully do) based on the feedback I am getting so far.

1. Amed the 2022 return with 5329 for self and wife with schedule 2 and pay 6% penalty. In case broker doesn't change the situation related to tax withholding, do the 2022 amendment any ways without fed withholding consideration. Correct me if I am wrong, hopefully I will get fed withholding back when I receive 1099R and report it when filing 2024 taxes.

2. Amend 2023 taxes (as filed by April 15, 2024) to report removal and earnings by Oct 15, 2024. I need to file 1040X with “Filed pursuant to section 301.9100-2” written at the top. However, I'm still confused about forms that I need to file earnings on to reflect it on 1040X. Following are the observations and questions I have regarding the forms I may have to  to complete and attach:

(a) 5329 for self and spouse to pay any penalty (not clear if 6% penalty needs to be paid again as I already would have paid 6% when amending 2022). I am yet not clear about 10% penalty that I believe I have to pay on my wife's earnings on the excess contribution. 

(b) Not sure how (what forms etc) excess contributions for 2023 removed will be reflected on amendment.

(c) Do I need to amend and submit schedule D to reflect earnings on excess contributions with 1040X. Am I to redo all of Schedule D to reflect 2023 earnings on withdrawals in it? If that is the case, the earnings are so miniscule that will be offset by carryover losses (both long term and short term and number to enter on 1040X will not change. Bigger questions for me is how and where to reflect these additional earnings to amend schedule D or other form that I may have to file.  Additionally, since my broker split the distributions on contributions made in 2023 for 2023 contributions and 2023 contributions made between Jan 1, 2024 - April 15, 2024, would that portion be covered in 2023 amendment. My understanding is no, but any feedback will be appreciated. 

(d). anything, I may be missing so far. 

@fanfare

when you remove earnings, you ask the custodian to calculate the earnings for the period in question.

The period in question does not include a 2022 contribution, since it is too late to remove earnings for 2022.

The custodian can calculate the earnings for 2023 contribution. the earnings depend on the calendar period the contribution is (or was) in the IRA.

You can also do the calculation yourself by consulting the IRS publication. This is error prone and you won't get a 1099-R with the correct taxable amount.

earnings don't go on Schedule D; that are added into 1040 Line 4b. that is the only form involved.

"April 15, 2023 - self (contributions for 2023 tax year made in 2023 + earnings tax withholding"

I don't know what you mean by "earnings tax withholding". 

Disregard withholding which is a separate issue.

If you took the contribution only, the earnings are still in there and have to be calculated and removed.

If the earning come out to be negative, then taking the entire  contribution results in an early withdrawal.

I 'm not familiar with how or whether the custodian can adjust for action you took on your own.

You can ask the custodian to calculate the earnings and inform you, then you take out whatever is still to be taken (i.e. earnings only as otherwise you will have  taken too much, which is an early distribution, which has  a penalty).

penalty on early withdrawal, has its own rules, not discussed (yet).

@msv1 

"April 15, 2023 - self (contributions for 2023 tax year made in 2023 + earnings tax withholding"

"I don't know what you mean by "earnings tax withholding". 

Disregard withholding which is a separate issue.

If you took the contribution only, the earnings are still in there and have to be calculated and removed.

If the earning come out to be negative, then taking the entire contribution results in an early withdrawal." 

What I meant was that contribution plus earnings were removed and in addition they custodian brokerage withdrew tax withholding on those earnings. When i questioned it, I was told this is how it is done if I want custodian to do the earning calculations. So, they took out more than they should have but It is done now.

"I 'm not familiar with how or whether the custodian can adjust for action you took on your own.

You can ask the custodian to calculate the earnings and inform you, then you take out whatever is still to be taken (i.e. earnings only as otherwise you will have  taken too much, which is an early distribution, which has  a penalty). penalty on early withdrawal, has its own rules, not discussed (yet)." I agree that they took out too much. However, regarding penalty, I am over 59 1/2, so I don't think I need to worry about early withdrawal penalty. Honestly, I have spent so much time so far with custodians to do it correctly, being passed from one manager to other, that I don't have it in me to keep trying after the fact.  On top of that this issue about amendments and paying penalties is too taxing for me. 

"earnings don't go on Schedule D; that are added into 1040 Line 4b. that is the only form involved."

You mean 1040X line 4b when I amend taxes?

Still not clear about what penalties (additional 6% etc.) are due with 2023 amendment.

@fanfare

"they took out too much"

You need to wait for the actual 1099-R(s) that you will get for you and your spouse.

The simplest solution is to amend 2023 next year. with the forms they send you.

The code(s) may not be what you expect.

If the codes cause further problems you would have to direct TurboTax using the corrct codes and explain to the IRS why you are filing this way.
OR, there may be no problems or problems small enough not to worry about.

As I stated several times,

"earnings don't go on Schedule D; that [sic] are added into 1040 Line 4b."

Allocable earnings go  on Form 1040 Line 4b, that increases your AGI, 1040-X Line 1.

Your AGI cannot go down, because negative earnings are ignored.

As I stated several times, 

"the 6% applies to the second case, case 2, only. See Form 5329."

Now that you confirm that earnings were removed, on time, you will be amending under case 1.

You know exactly what the custodian earnings calculation was by subtracting your excess contribution from your actual distribution.

You have to do this for each spouse's IRA since you both had excess.

When amending and paper-filing,

do not include your old 1040 nor your revised 1040 because the Form 1040-X reflects any changes there and becomes your new tax return.

@msv1 

Thanks #fanfare, #karenL for great responses. Unfortunately for me at this time, the information regarding "how to" and "when to" file is becoming overwhelming considering my limited knowledge of tax code and my initial hope of a simpler solution of what appeared to be an easy file to pay penalties and any taxes on residual income and move on. But it doesn't appear that is the case due to so many moving parts, including trying to do it with help of TurboTax that I have used since 2010.

Honestly, I don't know how the excess happened and why TurboTax didn't prompt me beyond a pop up that "would you like TurboTax to track your Roth IRA contributions" in 2023 is not clear. But now that is past, and I have to correct the situation, and timing can't be worse as it has caught me at a moment when I can ill afford to pay hefty penalties. 

Regardless, here are the facts of the matter.

1. First excess contribution happened in 2022:  Self - $7000, Spouse -$ 4000 (both removed in April/May 2024 as reg distribution).

2. Second excess contribution occurred in 2023: Self $7000 , spouse $200 (Excess (self) removed - $3500 on April 15, 2024 and 3500 on April 17, 2024; $200 for spouse to be removed in next few days)

3.  I filed my 2023 taxes before April 15, 2024, assuming that gives me until Oct 15, 2024 to remove any excess and/or amend tax returns for 2022 and 2023.

So, my questions are as following (some of these questions may have been answered partially in some way earlier by #fanfare, #karenL and others but I am reiterating the questions so someone else reading may not have to go back to understand my issues. My questions may have too much detail which may cause confusion for some, for which I apologize):

1. Amending 2022 taxes - Since the excess removal was done after tax deadline and I removed just the contributions (no earnings) in 2024, so

(a) am i required to pay anything more than 6% penalty on mine and my wife's excess on 2022 amended taxes?

(b) what forms do I need to use to amend?

(c) Do I need to generate 1099-R to file with 1040X?

(d) How do I do with turbotax if I don't wish to do it manually? Any step by step instructions would be appreciated.

2. Tax year 2023 - Amending 1040 that was filed on time before April 15, 2024, deadline - The removal of excess occurred (one before April 15, 2024) and rest after in April/May 2024 with earnings (separated for 2023 and contributions for 2023 made before April 15, 2024). Unfortunately, my broker removed tax withholdings from my account as well causing too much to be removed which I don't wish not to worry about considering other issues on hand. I intend to file 2023 amended taxes before Oct 15, 2024.

(a) am I required to pay another set of 6% penalties (or any additional penalties) on excess contributions for 2022? If yes what forms are required to be filled to report with 1040X.

(b) What forms do I need to complete to report 2023 excess removal?

(c) Since earnings for 2023 contributions were broken up between 2023 and 2024, Do I need to omit 2024 earnings at this time and use them next year on 2024 tax return or can they be settled in 2023 amended tax return. 

(d)  I am assuming there are no penalties for withdrawal of excess 2023 contributions but there maybe 10% age penalty on earnings on excess contribution. My penalty in this case would be around $5-$10. How and where to report this penalty? Do I need to break this up for penalty on what was earned in 2023 and 2024?

(e) Can someone suggest step by step process to do this with turbotax?

(f) Anything I may have missed

Any feedback and help anyone can provide would be appreciated. 

#ekalbs4  #DanaB27 #fanfare #karenL

Again you repeat all the questions about 2023 that I answered for you in detail above.

Your spouse's and your  contribution in 2022 falls under Case 2.

the excess was in there for two calander years so there are two years of 6% penalty.

Each IRA belongs to one person so you have to prepare two Forms 5329 for 2022 and two for 2023.

Get 2022 Form 5329 and 2023 Form 5329 from the IRS and try to prepare them by hand.

If you pay attention you will see how to do it and undestand why you will also have to file 2024 Form 5329 next year.

If you still don't see how to do it or don't want to start cold, get "Instructions for Form 5329" and review that document.

It is time to bite the bullet and prepare the forms.

It won't be any easier trying to explain all this to a professional tax preparer, who would charge a hefty fee.

@msv1 

In Fact 3. above, you are still confused about the Oct deadline for removing excess (it doesn't impact you) and the deadline for amending (there isn't any October deadline).

@msv1 

"Again you repeat all the questions about 2023 that I answered for you in detail above."
"you are still confused about the Oct deadline for removing excess (it doesn't impact you) and the deadline for amending (there isn't any October deadline)."

You are correct on both accounts. Maybe the reason is that I am not used to details regarding taxes and this is first time dealing with such situation. Further, it could also be that I am hoping too much by expecting logical step by step instructions and exact forms I have to fill for each step for 2023 and 2024, like the following below that you had provided for 2022 in your earlier post. It was clear and concise for someone like me and I am grateful to you for being patient with me.

"If you are paying a penalty then amounts are changing and you have to adjust your tax.
The new or changed forms would be
Form 5329
Schedule 2 Line 8
The penalty goes on 1040-X Line 10.
Do not include your old 1040 nor your revised 1040 because the Form 1040-X reflects any changes there and becomes your new tax return.

Done this way, you sign 1040-X, not 5329."

So, at this point I am very clear on what I need to do for 2022 and I am going to start the process to amend 2022 tax return and pay penalties by end of this week.

However, confusion starts with tax return for 2023 as I am unable to put together logical steps to undergo and complete the process. I am clear that I have to pay 6% for calendar year 2023 also but how to combine that with withdrawals for 2023 and when is the best time to file, so as not to incur any more penalties and issues, is what is the source of my confusion. 

Based on my earlier understanding, I was planning on amending 2023 return before Oct 15, 2024 for two reasons:
(a) considering that part of the contributions/earnings were removed just before and shortly after filing my 2023 return on April 15, 2023 and the way I understood from earlier conversations and reading IRS manuals that I must amend 2023 return before oct 15, 2023 to account for contributions removed after April 15, 2023 (but before Oct 15, 2023) and not be penalized.  However, from your recent post it appears that it is not the case, and 2023 tax return can be amended next year after I receive 1099-R's for the distribution. I hope what I understood is correct.

(b) Biggest source of my confusion was that all 2023 contributions/earnings removed will be reported as distributions for 2024 (on 2024 1099-R's) and would need to be reported on 2024 1040 lines 4a & 4b. They don't have any direct bearing on 2023 tax return. Correct?  So for 2023 tax, amendment just needs to report withdrawals (on 5329's for me and my wife in section III??), and any age penalty on earnings withdrawn (at this time there is none). So, your suggestion that I should wait until next year to do so, is it just to make sure that they go with the codes on 1099-R? I don't have any issue either way, filing it next year or this year as I had originally planned but just want to make sure that I am not adding additional issues or penalties by doing so.

Maybe it is asking too much but I will appreciate it and it will be help immensely if you can breakdown the easy steps/forms to file with timing for 2023 amendment and any extras for 2024, the way you broke it down for 2022 above.  Thanks

#fanfare

"reported as distributions for 2024 (on 2024 1099-R's) and would need to be reported on 2024 1040 lines 4a & 4b"

 I responded earlier to this point above also.

You are not attentively reading.

This goes on your 2023 tax return, not 2024 tax return.

so, for 2023 you will be amending to report both Case 1 and Case 2.

The incorrect advice  from "Expert" should be disregarded.

In my opinion it is easier to do the forms by hand than to struggle with TurboTax amend process.

Based on the info you have now, it is possible to do the amendment now.  Note: You can use TurboTax to calculate the new tax using the override feature - that does not involve the AMEND command.

October 15 is a deadline only in the sense that the e-File turns off then. After that date, only paper file is possible.

You have to file the 2022 return on paper so you will know how to do that for 2023.

--

You do have a messy problem but I can't hold your hand step by step to resolve it.

The main reason is TurboTax is not designed to make the solution easy for you, but instead difficult for you.

@msv1 

@msv1 

CAUTION: before doing anything, make a paper copy of the originally filed tax return, 

You can also preserve it by saving it under a different name i.e. "2022 original e-File.tax2022"

You will need it to amend.

@msv1