Excess Contributions to Roth

[user17743758133]

I've searched endlessly for a clear, concise answer.  I also called my financial firm, and the IRS (twice).  I'm still unclear on the total penalty, and on my next steps to file appropriate paperwork.  Here's my pickle:

In early April, 2025, I contributed $8K to a Roth for tax year 2024.  A few days ago, while working on my 2025 taxes, I realized that I wasn't eligible to make that contribution (no earned income).  I contacted Fidelity, yesterday, and they removed the excess contribution and earnings.  One rep said I don't owe a penalty, another said I owe owe a 6% penalty, and the IRS said I owe two 6% penalties.  I'm royally confused.  Also, I don't know which forms to file to fix this mess.  I know the 5398 is going be involved, but I don't know if I should amend my 2024 taxes first with a new 5398 (2024), before filing my 2025 taxes.

I would think this situation is somewhat commonplace, so I'm shocked at how difficult it appears to fix.  Thank you for any help.  I've been trying to get answers for 2 days now.

[MinhT1]

To solve this excess Roth contribution you made for tax year 2024, you need to do the following:

For tax year 2024: You need to amend your 2024 tax return to report the excess contribution on form 5329 and pay the 6% excise tax. This is because the excess contribute was not withdrawn before the due date of the 2024 tax return (April 15, 2025). 

Please read this TurboTax Help topic on how to amend a prior-year tax return.

For tax year 2025: As the excess contribution remained in the account as of December 31, 2025, an excise tax of 6% is due for 2025. You have to file form 5329 for 2025. To avoid continuing to pay the excise tax of 6% in 2026, you need to withdraw the excess together with its related earnings before December 31, 2026.

For tax year 2026: You'll receive a form 1099-R with the total amount withdrawn (excess plus earnings) in box 1 and earnings in box 2a. The code in box 7 should be 8J. You'll enter that 1099-R in your 2026 tax return and the earnings will be taxed. 

If there is a loss, that loss is not deductible.

[Edited 3/24/2026 | 1:16 PM PST

[user17743758133]

Thank you for the lightning-fast response.  

On 2024 - I had already started amending my 2024 taxes to add the 5329, which is assessing the 6% penalty.  This seems relatively straightforward, and is coming out as expected.

On 2025 - It's my belief, like you say, that the timeline by which I need to withdraw the money to avoid the 2nd 6% penalty is 4/15/26 (plus extensions).  I already met the 4/15/26 deadline you mentioned.  The IRS is acting like as soon as it turned 2026, 1/1/26, the 2nd 6% penalty applies, which makes no logical sense to me.  It's like being double penalized, like they aren't accounting for the successive tax years' deadlines.  I have seen what you describe being discussed in other help threads, adding the 1099-R manually, but I was still having trouble with it wanting to assess a penalty.  I think it has to do with not reporting the distribution properly.  I need to look through it carefully, and hopefully get back to you with a more refined question.

[user17743758133]

I think the question in the interview (for 2025) that is throwing me is when it asks if I have excess contributions to report, and included in this list is a prior year's excess contribution to a Roth or a 2025 excess contribution to a Roth.  I've been thinking the answer to this question was "yes", because I did have the excess contribution in 2024.  But, I think what you're telling me is the answer to this question is actually "no."  Saying "yes" appears, from your comment, that would be saying there are excessive contributions that have yet to be withdrawn by the 2025 tax deadline (4/15/26)?  Does this sound accurate, or am I not making sense?  In other words, answering "yes" is a means of carrying forward unresolved excessive contributions.

[MinhT1]

Having done further research, I have amended my answer above.

The excise tax of 6% is due in every subsequent year where the excess remains as of December 31 of that year (see IRC Section 4973).

[user17743758133]

This is really disappointing.  It seems like the IRS is double-penalizing you right at the crossover from year 1-2.  From then on, it's a full calendar year, but in the beginning they are pretty much going straight from 0% to 12% (if you account for extensions on the original year).  This is truly bizarre.

[user17743758133]

Thank you for following up on your initial post, and correcting it.  The 12% penalty is very unfortunate, but it does make more sense with what the software was generating based on my responses.  I will file the amended 2024, wait for confirmation of receipt, and then follow up with 2025 - each year now with the attached 5329 and associated 6% penalty.  At least the bleeding has been stopped, and the filings should put it to bed, until minor housekeeping next year, with the 1099-R and earnings.

Thank you again.

[user17743758133]

I finalized the 2024 amended return, and was hoping to get that 1st step complete with an electronic filing.  Unfortunately, it seems I have to snail mail the return.  Is there any reason the 2024 amended return needs to arrive at the IRS before my 2025 taxes (which will be electronically filed)?  Or will it eventually sort itself out?

[AnnetteB6]

No, amending the 2024 to pay the excise tax for the excess contribution is a stand-alone correction that does not necessarily feed into your 2025 return.  Everything will eventually sort itself out.  

@user17743758133