How to Apply Excessive Roth IRA Contribution from a Previous Year to a Later Year

[acejeffery]

I made an ineligible contribution amount of $898.70 to my 2019 Roth IRA, and I learned that I can apply this excess contribution to a later year. As I already contributed the full amount to my 2020, 2021, 2022, and 2023 Roth IRA, I was thinking about applying the excess amount to 2024, or 2023 (if I withdraw some money from my 2023 contribution before 4/15/2024).

Upon contacting the brokage company of my Roth IRA, I was told that their system doesn't support applying the excess contribution from a previous year to a later year. Therefore, should I wait and apply this excess amount to my 2024 Roth IRA contribution instead? If so, how can I apply the excessive contribution from 2019 to 2024 without the involvement of the brokage company?

If I do need to withdraw the excess amount of $898.70 before 4/15/2024, do I also remove the earnings/losses occurred since 2019, or 2023?

Lastly, will I still be subject to the 6% penalty each year, if I am able to apply the excessive Roth IRA contribution from 2019 to 2023 or 2024?

Thanks!

[Opus 17]

Duplicate.  Most of your question is already answered.

https://ttlc.intuit.com/community/retirement/discussion/excessive-ineligible-contribution-to-roth-ir...

The broker doesn't apply your excess to future years, you do that on your tax return.   If your contribution for 2023 is less than the allowable maximum, that will allow you to absorb the old excess.

You must file amended returns for 2019-2022 to pay the penalties.  Then for 2023, remove $890 as an excess contribution and follow the rules for reporting the earnings.  The old $890 excess will be "used up" via your tax return on form 5329.

Or, leave the account alone for 2023 and pay one more 6% penalty.  Then make sure that for 2024, your total contributions are at least $890 less than the maximum allowed (depending on your age and income).  The excess will be absorbed into your account on your 2024 form 5329. 

[fanfare]

return of excess contribution:

after tax due date including extensions properly requested: you distribute the excess amount being carried forward on 5329,
(or offset it with currently allowed contribution) .
An amended return will be needed supplying Form 5329 since there is a 6% penalty per year on excess contributions .
Earnings stay in the Roth account.

If you do it now you won't pay a 2024 penalty

[fanfare]

"Then for 2023, remove $890 as an excess contribution"

That's excess plus earning. use the correct form.

to do it that way you still have to do it by tax day, or by extension day if you request an extension now.

[Opus 17]

“That's excess plus earning. use the correct form.”

Was explained in full detail in the linked duplicate post. 

[acejeffery]

Thank you so much for the reply. Sorry that I was confused by the answers, but I wonder if I should withdraw only $899, or also the earnings? 

[DanaB27]

You will request the return of the 2023 excess contribution of $899 plus earnings with your financial institution.

[fanfare]

until you see what the allocable earnings are, don't file.

Positive earnings will be included on Form1040 Line 4b. 

@acejeffery 

.

[acejeffery]

I have decided to leave the account alone and contribute $899 less for 2024 without withdrawing the excessive contribution. If I understand it correctly, I still need to file the form 5329 with tax amendment 1040X for the years 2019, 2020, 2021, 2022, and 2023. Although I only need to enter information for the Part IV of the 5329 form, I found the 1040X very confusing. What lines on the 1040X amendment form should I make the complete or make the change? I am having trouble with Turbo tax and I'm trying to file 1040X on paper. 

Thank you so much.