@jliangsh wrote:
@Opus 17
Thank you so much for your detailed reply and step-by-step instructions. I truly appreciate it.
I have two follow-up questions:
Q1: On Form 5329, I understand that I need to report the carryover excess from 2021 in Part IV: Additional Tax on Excess Contributions to Roth IRAs. However, I’m wondering if I also need to report the earnings from my 2024 excess contribution in Part I: Additional Tax on Early Distributions. My understanding is that since the excess contribution was timely removed before October 15, 2025, it would not count as an “early distribution,” so I would not need to complete Part I of Form 5329. Could you please confirm?
Q2: On Form 1040-X, as you mentioned, lines 1, 5, and 6 have changed based on the differences between the original and amended 1040. For line 10, Other Taxes, my understanding is that this will only include the 6% penalty from the carryover excess contributions from 2021, but not the 10% penalty for 2024 early distributions (again, since it was timely removed, I assume it would not be considered an early distribution). Could you clarify if I'm understanding this correctly?
Thank you again for your guidance!
Just read the form and the instructions. Your 2024 form 5329 reports the carryover from 2023. (And 2023 reports the carryover from 2022, and the 2022 form reports the carryover from 2021). There is nothing on form 5329 about adding earnings. The 6% penalty is meant to offset any earnings.
When you timely removed the 2024 excess contribution of $3000 plus those earnings, they are reported using a 1099-R with codes P and J as I described. The earnings that are removed when you timely remove an excess contribution are not subject to the additional 10% penalty for early withdrawal. This is a law change in the 2021 SECURE act or maybe the 2022 SECURE 2 act. The earnings that you remove when you make a corrective distribution are not subject to the 10% penalty.
Line 10 would include all extra taxes from form 5329. But you will only be completing Part IV, and not any other parts.
