Excess Traditional IRA contribution in 2022 (completed 8606 form), but didn't enter anything for 2023

[Tamara954]

Hi -  I made a mistake in Y2022 taxes with an excess Traditional IRA contribution of $7000.  (I'm a senior).  For Y2022, I also contributed the maximum to a Self-Employed Individual 401K, making the $7000 non-deductible.   I didn't notice this since I trusted Turbotax's "max" Individual 401K calculation amount. However, the Turbotax calculation did NOT deduct the $7000 Traditional IRA contribution that i had already entered into Turbotax, so the $7000 ended up being excess.  I didn't take any distributions to correct this error.  In 2023, I didn't answer any Turbotax questions about an excess contribution since I thought Turbotax would carry the information forward year to year.  Stupid me.  I also contributed to a Traditional IRA in 2023 - $7500 and I can see I got the deduction.  Looking at my 2023 Turbotax tax return and all worksheets, I don't see a form 8086.  Am I supposed to fill this form out every year?  Will 2023 be an issue if I didn't answer the Turbortax questions that i had an excess contribution?  The Turbotax 2023 IRA Worksheet Line 15 "Excess traditional IRA contributions to Form 5329, line 15" shows "0".   I don't know how to fix Turbotax for 2023, or 2024 (should I say there was an excess contribution?), or the actual excess contribution $$$.  It's too late for a distribution correction for 2022.  I hope someone can provide me some guidance as this is all way over my head.  Thank you. 

[DanaB27]

To clarify, does your 2022 return include Form 5329 and calculated a penalty in part III? You wouldn't include a 401k contribution in the IRA contribution section.  

Note, if you get the warning that you cannot deduct a traditional IRA contribution then this isn't an excess contribution it just means your contribution is nondeductible and TurboTax will create Form 8606 to report the basis. If you have an excess IRA contribution you will get a warning about the 6% penalty and TurboTax will fill out Form 5329 to calculate the 6% penalty if you do not withdraw the excess plus earnings by the due date. Therefore, if entered the IRA contribution but you did not get the penalty screen and have no 2022 Form 5329 then you do not have an excess contribution for 2022.

If you indeed have an excess contribution then you will have to pay the 6% penalty for 2022, 2023, and 2024 (assuming you cannot apply the excess to 2023 or 2024). If you cannot apply the excess to a following year then you will have to remove the excess with a regular distribution without earnings since it is after the due date. Please see Return of Excess Traditional IRA Contributions for details. But it seems your 2023 return doesn't show an excess contribution since the IRA Worksheet Line 15 "Excess traditional IRA contributions to Form 5329, line 15" shows "0".

No, you do not fill out Form 8606 every year. Please see Who Must File Form 8606 for details.

[dmertz]

Are you sure that you made an excess contribution for 2022?  I don't think that you made an excess contribution.  The age limit for making a traditional IRA contribution was eliminated for tax years 2020 and beyond.  As long as you had sufficient compensation  remained to support the traditional IRA contribution after subtracting the contributions made to the 401(k), you did not make an excess contribution.  A nondeductible traditional IRA contribution is not an excess contribution if you have the compensation to support the contribution.

If your 2022 tax return prepared by TurboTax included Form 8606 Part I to report the nondeductible contribution but did not include Form 5329 Part III to report an excess contribution, you apparently made no excess traditional IRA contribution.

[Tamara954]

Dana, thank you for your response. In 2022’s tax return,  I never got a warning about Excess contribution - only the Form 8606 saying my IRA contribution was non-deductible.  I just had TurboTax Live support take a look at 2022 and they confirmed it wasn’t Excess - just non-deductible. That year, I had both W-2 income as well as self employment income and made a Traditional IRA contribution and a Solo401k contribution. But I didn’t exceed my income.  I had enough W-2 income to cover the Traditional IRA, and enough self-employed income (net profit minus 1/2 self-employment tax) to cover the Solo401k contribution, separately, so I am greatly relieved!!!  Thank you for your help. I truly appreciate this community of knowledge. 

[Tamara954]

Dmertz

You are right. Turbo tax only did a Y2022 Form 8606, not 5329. I was able to escalate within TurboTax live support who looked back at Y2202 and let me know that it wasn’t excess, just non-deductible which makes everything much easier. That year I had both W-2 AND 1099 self-employment wages making things messier for me to figure out if I had enough income to cover both a Traditional IRA & a much larger Solo401k contribution.   I truly appreciate your response. A big weight has been lifted off my shoulders, Thank you for taking the time to help me.