I don't agree with Fidelity. Form 5329 line 23 instructions page 6 states:
"Enter the excess of your contributions to Roth IRAs for 2023 (unless withdrawn—discussed below) over your contribution limit for Roth IRAs. See the instructions for line 19, earlier, to figure your contribution limit for Roth IRAs. Don’t include rollovers in figuring your excess contributions.
You can withdraw some or all of your excess contributions for 2023 and they will be treated as not having been contributed if:
- You make the withdrawal by the due date, including extensions, of your 2023 tax return; and
- You withdraw any earnings on the withdrawn contributions and include the earnings in gross income (see the Instructions for Form 8606 for details). Also, if you hadn't reached age 59½ at the time of the withdrawal, include the earnings as an early distribution on line 1 of Form 5329 for the year in which you report the earnings. Report this amount on line 2 and enter exception number 21."
If your daughter isn't required to file a tax return, then she can file 2023 Form 5329 and 2024 Form 5329 by itself to pay the 6% penalty. Please see Form 5329 instructions. Please see Do I need to file a federal return this year?
The 2025 Form 1099-R will have to be entered on the 2025 tax return and not the 2024 return. If Fidelity doesn't correct the 2025 Form 1099-R then you can either enter it as shown on the form or enter a substitute Form 1099-R with code J only and explain that Fidelity refused to correct the form.
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