@Kmcg9 wrote:
Thank you for your response!
I added the full $6k in 2022 and $6.5k in 2023. I already paid a penalty on my 2022 and 2023 tax returns (didn't notice in 2022, waited too long to fix 2023). I made no contributions in 2024 and will have to check my income to see if I was allowed to. If I was allowed, would there be some form to fill out with my bank to reclassify $7k for 2024 contributions, and is there a deadline to do this? And if I am under again in 2025, could I potentially reclassify the remainder as a 2025 contribution?
And to clarify, if I do need to withdraw, am I stuck paying the 10% early withdrawal fee on my contributions, or is that just for earnings?
Roth eligibility is here.
https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that...
If you are eligible to contribute to a Roth IRA in 2024, there is nothing you do at the bank, it is all on the tax return. I'm not exactly sure how to enter this situation because I haven't tested it. I would start by running the IRA contribution interview, go into the Roth IRA section. It should ask if you made any contributions in 2024, and if you had an excess from prior years. Then it should be worked out on form 5329. (you can see the calculation yourself starting at line 19, https://www.irs.gov/forms-pubs/about-form-5329)
Then yes, if you are eligible to contribute for 2025 based on your income and other situations, and you contribute less than the maximum allowed, you could apply the remaining excess from 2022/2023 to the 2025 limit.
Withdrawal of Roth contributions is always tax-free, including penalties. Whether or not you pay tax depends on your past contributions and withdrawals. You contributed $12,500 in 2022 and 2023. What are the total of your lifetime contributions, and have you ever made any previous withdrawals? Even if these are your total lifetime Roth IRA contributions, if you never withdrew before, then the $12,500 you need to withdraw would be those contributions. Or, if we suppose these are your only contributions, but you withdrew $2000 last year for an emergency expense, then your contributions remaining in the account are $10,500, so if you withdraw $12,500, $2000 would be considered earnings and subject to tax and penalty.
