backdoor roth. Excess contribution and total basis from previous year

[giner05]

HI. i performed a back door roth last year for 2023 and 2022. I also performed a back door roth for 2024 but it has an excess of $20.

I'd rather not withdraw and have to amend something  as I am not too versed in taxes or filling out tax forms. I read that I can just take a 6% penalty and move it to my 2025 contribution. 

I am not understanding how that excess of $20 would be "moved" to the next year's roth. If my 2025 roth is funded at the max amount, would as simple as distributing $7000-20? or its some other outside action. 

It's also saying i have a total basis from previous years of $100. Can I just move my excess contribute from 2025 to the 2024 or is it too late because i've already distributed the excess $20? Or how is that done?

Thanks in advance.  

[ThomasM125]

If you over contributed for 2024 you can just reduce your 2025 contribution limit by the amount overcontributed and that will remove the overcontributed penalty going forward. You will have to pay the penalty tax in 2024 if you did that. Your other option would be to make a distribution in 2025 of the amount overcontributed and earmark it for 2024 and do it by April 15, 2025 to avoid the penalty all together. 

[giner05]

Thank you for the insight! another follow up question: 

In addition to that $20 over contribution,  by the time i performed the back door roth in 2025, it gained $7 from interested or something when i funded it, and i moved over $7007 instead of $7000 for 2025. So for my 2025, would I just reduce my total distribution by 27 dollars (the $20 from over contribution in 2024 and $7 from the random acquired interest?)? 

[DanaB27]

To clarify, you contributed more than $7,000 to the traditional IRA for 2024 and therefore you have a $20 excess contribution?

If you have gains before converting the funds to Roth then you can just move them with the contribution, this is not an excess and you do not need to remove them. 

Please make sure you do not enter a Roth IRA contribution or selected switched to Roth IRA in the IRA contribution interview. The conversion is only entered in the retirement section when you enter the 1099-R.

Please review How do I enter a backdoor Roth IRA conversion?

[giner05]

Yes for my 1099-R from 2024. I have $7020.

so there is an excess of $20 from 2024. 

This year, when backdoor my traditional roth to roth ira i funded $7000 in the traditional roth, but when i moved it to roth IRA, there was interest of $7. 

From the previous answer, it sounds like i can just distribute $20 less in 2025 to resolve the overcontribution from 2024, but I wasn't sure if that same line of thought applies for that $7 of interested that occurred for my 2025 backdoor. Would i just contribute another $7 less as well? 

[DanaB27]

The gains in the traditional IRA before you convert to Roth IRA is not an excess contribution. These gains will be taxable when you converted them but it is fine to convert them.

You do not need to remove the $20 or $7. You also don't need contribute less in the following year if you do not remove them since you do not have an excess contribution.

To clarify, did you get an the excess contribution warning at the end of the IRA contribution interview? If yes then you need to review your entries. Please make sure you didn't enter in the IRA contribution interview that it was transferred to Roth IRA, this is only for recharacterizations. You enter the conversion in the retirement section and indicate in the follow-up questions that it was converted.

Please review How do I enter a backdoor Roth IRA conversion?

[giner05]

I think I understand now. So as long as I funded the traditional roth with the correct amount ($7000), any gains from dividends or interest from my traditional roth converted to a Roth IRA is NOT considered excess? 

And therefore, the $20 from Gross distribution amount of $7020 on my 1099-R form is not an"excess" contribution. Is this correct?

[AnnetteB6]

That is correct.

@giner05 

[giner05]

Thanks! that makes a lot of sense now.

After I have entered the information from the 1099-r, under the deductions section, it asks me to "enter any traditional IRA contributions made during 2024," would I be entering the $7020 from the 1099-R form or the $7000 that I originally contributed? 

[DanaB27]

You will enter the $7,000 you originally contributed for 2024.