How do I pay past year's excessive IRA contributions?

[burkes55]

My wife and I have made excessive contributions on our Roth IRAs for a few years and now owe a 6% penalty on those balances from previous years.

My question is, how and when do I pay them? On my 2024 tax return, I can pay for the excessive contribution penalty for 2024, but how do I pay for the amounts from 2023, 2022, etc?

My brokerage firm said they will send a 5329 in January 2026 showing the withdrawal of the excess amounts. Do I settle it at that time? Should I pay anything for 2024 or wait until the 5329 comes in and settle it all then? 

Any help would be appreciated!

[fanfare]

If you left too much in three times  (i.e. since 2022) your penalty so far is 18%

Your 2022 and 2023 penalty is 6% each making 12% outstanding

your 2024 penalty is 6%

You can place this amount on your 2024 Form 5329 as 12% of excess from your last 5329 (which so far does not exist) and  Additional Tax this year  of 6% of excess.

Total amount on your 2025 return will be 18% from last form 5329 but you will be able to resolve that with your 2025 1099-R.

You will  have to submit two forms 5329 : Form 5329 T and Form 5329-S

==

If you don't amend 2022 and 2023 tax returns for completeness, you are hoping for IRS leniancy or being too understaffed to notice.

@burkes55 

[fanfare]

"they will send a 5329 in January 2026"

it is a 2025 1099-R you will get not a 5329

[DanaB27]

As fanfare mentioned you will need to amend your 2022 and 2023 tax returns to pay the 6% penalty each year. Please see How do I amend my federal tax return for a prior year?

On your 2022 return you will pay the 6% penalty for your 2022 excess.

On your 2023 return you will pay the 6% penalty for the 2022 and 2023 excess.

On your 2024 return you will pay the 6% penalty for the 2022 and 2023 excess.

You should have taken a regular distribution (without earnings) for the 2022 and 2023 excess since you removed it after the due date. As fanfare mentioned you will get a 2025 Form 1099-R with code J to enter on your 2025 return and this will resolve the excess contribution from 2022 and 2023.

To clarify, you made also an excess contribution for 2024? If yes, did you request the withdrawal of excess contribution and earnings?

If yes, and you made an excess contribution in 2024 and withdrew the 2024 excess Roth IRA contribution plus earnings in 2025 before the due date, then you will get a 2025 Form 1099-R in 2026 with codes P and J. This 1099-R will have to be included on your 2024 tax return and you have two options:  

• You can wait until you receive the 2025 Form 1099-R in 2026 and amend your 2024 return or
• You can report it now in your 2024 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2025 Form 1099-R into the 2025 tax return since the withholdings are reported in the year that the tax was withheld. The 2025 code P will not add anything to your income in the 2025 tax return but the withholdings will be applied to 2025.

To enter a 2025 Form 1099-R in your 2024 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2024?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
11. On the "Which year on Form 1099-R" screen say that this is a 2025 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2023" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2024.

Also make sure you indicate in the IRA contribution interview that you withdrew the excess contribution by the due date:

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 for 2024
5. On the "Do you have any Excess Roth Contributions" answer "Yes"
6. On the "Enter Excess Contributions" screen enter the total excess contribution from 2022 and 2023
7. Continue until the penalty screen and enter the 2024 excess contribution amount as withdrawn.

[burkes55]

@DanaB27 Is this an either/or situation? I can either amend my 2022 and 2023 taxes OR wait until the 1099-R is received and settle at that time? Or must I do both?

[DanaB27]

To report the 2022 and 2023 excess you must amend the 2022 and 2023 returns to add and pay the 6% penalty if you haven't paid it on the original returns.

For the 2024 excess you can add the earning on the 2024 return now or amend the 2024 return when you get the 2025 Form 1099-R with code PJ.

[fanfare]

"On your 2023 return you will pay the 6% penalty for the 2022 and 2023 excess."

Not if you paid the 6% penalty on your 2022 amended return.

the program I laid out is correct if  you are paying all outstanding penalties at once  in 2025

Yes this is confusing but you have to study and understand the Form 5329 to file correctly.

@burkes55 

[fanfare]

OK I'm bowing out because @DanaB27  is right and I'm wrong.

you still have time to remove a 2024 contribution without 6% penalty which presumably you have now done.

I apologize to both.

@burkes55