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Retirement tax questions
Yes, the earnings from an excess contribution are taxable income and will increase you MAGI and therefore you can cause another excess contribution. Yes, you will have to pay the 6% penalty on your 2023 return for the new excess contribution. TurboTax should automatically add Form 5329 to pay the 6% penalty.
On your 2023 tax return.
- Click on "Search" on the top right and type “IRA contributions”
- Click on “Jump to IRA contributions"
- Select “Roth IRA”
- Enter the Roth IRA contribution
- Continue until the penalty screen and enter the excess contribution amount withdrawn (without earnings). TurboTax will add the remaining excess on Form 5329 and calculate the 6% penalty.
Yes, if you are allowed to make Roth IRA contributions then you can apply the 2023 excess as a 2024 contribution. To do this you leave the contribution in the Roth IRA and follow these steps in the 2024 return:
- Click on "Search" on the top right and type “IRA contributions”
- Click on “Jump to IRA contributions"
- Select “Roth IRA”
- On the "Do you have any Excess Roth Contributions" answer "Yes"
- On the "Enter Excess Contributions" screen enter the total excess contribution from 2023 (if it wasn't carried over).
- On the "How Much Excess to 2024?" screen enter how much you want to apply to 2024.
If you cannot apply the excess as a 2024 contribution then you will have to pay the 6% penalty on your 2024 return and you should request a regular distribution of the new excess contribution amount without the earnings (since it is after the 2023 due date). This distribution will be reported on your 2025 return.
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