Retirement tax questions

Yes, you would have to pay the 6% penalty on your 2023 return on the 2023 excess contribution amount. You do not add the earnings on your 2023 return.

I edited my above answer to reflect that this is a Traditional IRA. They really messed up, there is no code X for a box 7 for Form 1099-R. Please see Form 1099-R instructions for details. You could file a substitute Form 1099-R with code 7 to report the distribution and this would resolve the 2023 excess contribution on your 2024 return.

In the IRA contribution interview on your 2024 return:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “traditional IRA”
4. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
5. Enter the amount you contributed
6. On the "Do you have any Excess Traditional IRA Contributions" answer "Yes"
7. On the "Enter Excess Contributions" screen enter the 2023 excess contribution amount
8. Say 'Yes" to "Contribution amount Withdrawn"
9. Enter the amount withdrawn.

Enter the substitute Form 1099-R with code 7, distribution amount in box 1 distribution amount, box 2a blank, and check the "Taxable amount not determined" in 2b. Please see Return of Excess Traditional IRA Contributions for additional information.

No, you do not involve the financial institution to apply an excess contribution as a 2025 contribution. It is done next year on your 2025 return:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Traditional IRA”
4. On the "Do you have any Excess Traditional IRA Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution left (line 24 of your 2024 Form 5329)
6. On the "How Much Excess to 2025?" screen apply the excess as a 2025 contribution.

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