Excess contribution to Roth IRA in 2023

[WillieBillie]

Hi, I've reviewed answers to this question but still need some help.. I made an excess contribution to my Roth IRA in 2023 and withdrew the excess and earnings in 2024, prior to 4/15/2024. I have now received a 1099-R for 2024 showing the gross distribution and the earnings as taxable amount (Box 2a).  I was older than 59 1/2 at the end of 12/31/2024. I'm amending my 2023 taxes but adding the earnings as income creates another excess contribution in 2023. Do I need to have another excess contribution and earnings removed? or can I leave this in my IRA and apply to 2024? is there a penalty? and what forms do I use? If this is a Roth, and I'm older than 59 1/2, is it taxable earnings? Thanks so much for help!! 

[DanaB27]

Yes, the earnings from an excess contribution are taxable income and will increase you MAGI and therefore you can cause another excess contribution. Yes, you will have to pay the 6% penalty on your 2023 return for the new excess contribution. TurboTax should automatically add Form 5329 to pay the 6% penalty. 

On your 2023 tax return.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. Enter the Roth IRA contribution
5. Continue until the penalty screen and enter the excess contribution amount withdrawn (without earnings). TurboTax will add the remaining excess on Form 5329 and calculate the 6% penalty.

Yes, if you are allowed to make Roth IRA contributions then you can apply the 2023 excess as a 2024 contribution. To do this you leave the contribution in the Roth IRA and follow these steps in the 2024 return:

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 2023 (if it wasn't carried over).
6. On the "How Much Excess to 2024?" screen enter how much you want to apply to 2024.

If you cannot apply the excess as a 2024 contribution then you will have to pay the 6% penalty on your 2024 return and you should request a regular distribution of the new excess contribution amount without the earnings (since it is after the 2023 due date). This distribution will be reported on your 2025 return.

[WillieBillie]

Thanks! For the 2023 Amedment, where does the Form 5329 show up so I can review and see the amount? I can't find the calculation screen again that showed this.. For the 2024 return, this is the number I enter on the 2024 as excess? For 2024, I have already made my max contributions. Do I pay the penalty on the excess in 2024 and also withdraw the excess from my IRA as a regular distribution? Thanks so much!

[DanaB27]

In TurboTax Desktop you can switch to Form mode to view Form 5329. 

In TurboTax Online:

1. Select Tax Tools on the left while in the 2023 tax return and then Print Center 
2. Select Print, save or preview return

You could request the withdrawal of excess contribution plus earnings of part of your 2024 contribution to be able to apply the 2023 excess to 2024. This way you avoid paying the 6% penalty on your 2024 return. If you are in the phaseout range you might have to withdraw a little extra since the earnings will be taxable on your 2024 return and will increase your MAGI.

If you do this then please follow these steps on your 2024 return:

1. Click on “Jump to IRA contributions"
2. Select “Roth IRA”
3. Enter the Roth IRA contribution for 2024 left in the account (Roth IRA contribution made minus excess contribution amount withdrawn to apply the 2023 excess towards 2024)
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 2023 ( from line 24 of your 2023 Form 5329).
6. On the "How Much Excess to 2024?" screen enter how much you want to apply to 2024.

[WillieBillie]

Hi Dana, I'm following these instructions, I entered $3500 as my Roth IRA contribution; and $4000 as the excess contribution (that I already withdrew). I added the interest earned as income under 1099-R section. Form 5329 is showing the interest earned in  Part 1 line 1 as income for early distribtion, and the $4000 as distribution not subject to tax (since I entered I am older than 59 1/2). Nothing is in Part III for an additional excess amount and a penalty calculation. I cannot find a screen where the excess is even calcualated. Sorry to keep asking, I've called the help desk 3 times and you see to know the most!!