2022 Excess Roth IRA Contribution

[TGIF1]

I was doing my daughter's taxes and just realized that she contributed $6K into Roth IRA for 2022 tax year, but only made $1,886 in income.  There was no contribution for 2023 tax year and 7000 for 2024 tax year.  How do I fix this? From reviewing other posts, do I do the following:

1) Amend 2022 Tax return declaring excess contribution of $4,114, and generate the 5329.

2) Amend 2023 Tax return to get a 5329 for the penalty.

Now not really sure what to do with excess prior to 2024 Tax deadline

3) Contact Roth IRA Custodian to remove excess from the 2024 Contribution ($7,000-$4,114).

4) Create a 1099-R 2024 Tax return. And how do I determine if there was any earnings?

Thank you

[DanaB27]

 She will have to pay the 6% penalty for 2022 since it wasn't already included on her 2022 return. Please see How do I amend my federal tax return for a prior year?

If she was allowed to to make contributions for 2023 then she can apply the excess to 2023.

On the 2023 amended return if she can make a Roth IRA contribution for 2023:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2022 
6. On the "How Much Excess to 2023?" screen enter how much you want to apply to 2023.

If she cannot apply the excess to 2023 then she has to pay the 6% penalty for 2023. 

If she cannot apply the excess to 2023 then she can apply the excess to 2024 and you can remove the 2024 contribution by requesting the withdrawal of the excess contribution plus earnings. The custodian should be able to calculate the earnings for you. If not please see Worksheet 1-4 in Pub 590-A.

If you made an excess contribution in 2024 and withdrew the 2024 excess Roth IRA contribution plus earnings in 2025 before the due date, then you will get a 2025 Form 1099-R in 2026 with codes P and J. This 1099-R will have to be included on your 2024 tax return and you have two options:  

• You can wait until you receive the 2025 Form 1099-R in 2026 and amend your 2024 return or
• You can report it now in your 2024 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2025 Form 1099-R into the 2025 tax return since the withholdings are reported in the year that the tax was withheld. The 2025 code P will not do anything to your income to the 2025 tax return income but the withholdings will be applied to 2025.

To create a Form 1099-R in your 2024 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2024?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
11. On the "Which year on Form 1099-R" screen say that this is a 2025 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2023" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2024.

If she cannot apply the excess contribution to the following years then she would have to take a regular distribution without earnings to remove the excess in 2025. She would have to pay the 6% penalty on the 2022, 2023 and 2024 return.

The regular distribution will be reported next year on the 2025 return and this will resolve the excess contribution:

1. Login to your TurboTax Account 
2. Click on "Search" on the top and type “1099-R” 
3. Click on “Jump to 1099-R” and enter all your 1099-Rs
4. Click "Continue" on the "Review your 1099-R info" screen after you entered all you Form 1099-R
5. Answer "Owned Any Roth IRA for Five Years?" screen
6. Continue through the questions and make sure you enter the net contributions prior to 2025 on the "Enter Prior Year Roth IRA Contributions" screen (include the excess contribution here)

[Opus 17 · Accepted solution]

For 2022: Amend and report the excess and pay the 6% penalty.

For 2023: Amend.  If she was eligible (had earned income) and did not contribute, then part or all of the excess can be applied to her 2023 eligibility, which will reduce or eliminate the excess amount.  If she had at least $4114 of earned income in 2023, that will clear it up.   You need to amend 2022 first, so you can use the information from form 5329 to amend the 2023 return.  And do both these things before filing the 2024 return, because each set of figures flows to the next return. 

For 2024: If she had no excess after 2023 (by applying the 2022 carryover to her 2023 eligibility), then just file 2024 normally.  If there is still some excess in 2024, contact the plan to remove it.  (It won't be all $7000.  If she did not work at all in 2023, the excess will be at most $4114, because the $4114 excess from 2022 will be applied first, making her remaining 2024 eligibility $2886.)  But, she will have full eligibility in 2024 as long as she earned at least $4114 in 2023. 

[TGIF1]

This answer is also valid.