The 6% penalty that you owe for 2022 can only be addressed on your 2022 return. If you don't fix it yourself, the IRS has 3 years to catch you, and assess the penalty, with interest and an additional penalty for late payment (totaling about 1.5% per month from whenever they catch you, back to the original filing deadline of April, 2023.)
Can you tell me more about this 3 year limit? If they don't catch the issue in 3 years then they won't be able to penalize me 4 or 5 years down the road? Put another way, in this case after 4 years, assuming they didn't catch the issue themselves, the issue would then be resolved permanently in future filing years?
Additionally, would the penalty maximum be approximately ($500 * 6%) + ($500 * 6%) + ($500 * 6%) + (($500 * 1.5% ) * 36). This is 3 years of 6% penalty on the excess + 1.5% penalty for 36 months (3 years). Knowing this upper bound will help me decide if filing an amendment or just paying a penalty makes more sense
Separately, if you don't deal with the excess, there will be another penalty for 2023, and every year after that the excess remains in the account. And even if you remove the excess or "use it up" by contributing less than the maximum in some future year, the IRS won't know about it unless you document it--meaning they can continue to assess tax, interest and late fees--and documenting it will call it to their attention. So its best to fix it properly as soon as you can.
It makes sense they'd penalize me in 2023 for the excess (since would still exist) but I'm also fine with that 6% penalty so long as this would then resolve itself in 2024. Does the fact that I contributed less than the max in 2023 help here or would contributing less than the max only matter in 2024?
