Retirement tax questions


@DanaB27 wrote:

Yes, you will have to file Form 5329 and pay a 6% penalty for each year the excess remains in the IRA (but it can't be more than 6% of the Roth IRA value). Please see Form 5329 Instructions and Prior year Form 5329.

 

For 2018 Form 5329 you will have to pay the 6% on the 2018 excess ($36).

For 2019 Form 5329 you will have to pay the 6% on the 2018 + 2019  excess ($72).

For 2020 Form 5329 you will have to pay the 6% on the 2018 + 2019 + 2020 excess ($108).

For 2021 Form 5329 you will have to pay the 6% on the 2018 + 2019 + 2020 + 2021 excess ($144).

For 2022 Form 5329 you will have to pay the 6% on the 2018 + 2019 + 2020 + 2021 excess ($144).

I think that on the 2022 tax return, the excess will be reduced from $2400 (as of 2021) down to $2100, because the taxpayer was eligible in 2022 and only contributed $5700.

 

Then for 2023, the taxpayer can absorb the remaining $2100 of excess by contributing $4400 or less (because the regular contribution limit for 2023 was raised to $6500.)