Excess contributions Roth IRA exceed account balance over multiple years

[Dave C11]

I contributed excess contributions $6580 in 2021 tax year and have been paying penalty without realizing it until 2024. I like to correct it so I don’t continue paying the penalty on 2023 taxes before April 15,2024. However, my Roth IRA account balance doesn’t have sufficient funds to cover the $6580 anymore. I went ahead and requested my broker the $6580 withdraw request form but they will only be able to withdraw the remaining balance. How do I clear this on my tax forms when 1099-R won’t reflect the $6580 excess contributions from 2021 year. Thanks 

[DanaB27]

For 2023 you will still pay the 6% penalty since the excess wasn't removed by December 31, 2023 unless you are able to make Roth IRA contributions for 2023 and contributed less than your allowed amount. In this case, you can apply the excess as a 2023 Roth IRA contribution.

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 2021 (if it wasn't carried over).
6. On the "How Much Excess to 2023?" screen enter how much you want to apply to 2023.

But when you enter the the distribution on your 2024 return the excess contribution will resolve because the penalty is calculated as the smaller of the excess contribution or the value of your Roth IRAs on December 31, 2024 (including 2024 contributions made in 2025).  Therefore, you won't have to pay the 6% in 2024 since your Roth IRA will be empty.

[Edited 4/14/2024 | 7:16am PST]

@Dave C11 

[Dave C11]

I should probably stop contributing then till next year? I was contributing little every month. Thanks

[DanaB27]

If you are able to make Roth IRA contribution for 2024 then you should contribute less than your allowed amount. Then you are able to apply the rest excess of the 2021 excess contribution as a 2024 contribution and resolve the excess contribution that way.

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 excess contribution from 2021 (if it wasn't carried over).
6. On the "How Much Excess to 2024?" screen enter how much you want to apply to 2024.