@DIYTaxRtn
Yes, you will pay a penalty in 2023 based on 6% of $11,020 (since any removal you plan will now happen in 2024, the excess was still there as of 2023. But the penalty won't include the additional $7500 for 2023 if you remove it in time.
Yes, the penalties will be calculated on form 5329 for each year, with another form 5329 in 2024 showing you removed the excess and owe no further penalties.
Each year's software can only amend that year's return. so you need 2021 to amend 2021, and so on. (TT online might be able to amend one year back, that's a fairly new addition to the web site.)
Also note:
I made a mistake regarding the attributable earnings for the 2023 removal of excess contribution. Because the excess $7500 was contributed in 2023, the earnings are reported as income on your 2023 tax return, even though you won't receive the funds until 2024. On your 2023 tax return, you need to create a "substitute 1099-R" form to report the earnings and pay the income tax plus 10% penalty for early withdrawal. You will still get a 1099-R for 2024 that lists the earnings, but it should have a code P, meaning it was taxable in the prior year, so it won;t be added to taxable income for the current year.
