How to properly remove excess ROTH contributions after the deadline.

[Kmcg9]

In 2022 and 2023 I contributed to my ROTH IRA when I was above the income limit.  In January 2025 I attempted to remove the excess contributions and earning but was told by my bank that it was too late/past the deadline for this process.

I want to remove these contributions to stop paying the 6% fee each year.  I've located anything I purchased and sold the tax lots so that the deposits and earnings are now sitting in cash.  Do I just make a standard withdrawal, or account transfer, for the total amount of deposits (or deposits + earnings)?  I'm worried about how to make this request to avoid the 10% early withdrawal fee since I can no longer check the "excess contributions" box that would code the withdrawal properly.  And if it is a standard withdrawal, is there a form that I will get to show the IRS what I'm doing to avoid the 10% early withdrawal?

[Opus 17]

For 2022, you should have reported the excess and paid a penalty on form 5329.  If not you need to file an amended return.

For 2023, you should have reported the combined excess and paid a penalty on form 5329. If not you need to file an amended return. 

For 2024, were you eligible to make contributions, and did you make any?

If you were not eligible in 2024, you need to pay the 6% penalty on your 2024 return using form 5329, then skip to the next section.

If you were eligible in 2024, then you can apply some or all of the 2022 and 2023 excess to your 2024 limit.  For example, suppose the excess was $3000 for 2022 and 2023 ($6000 total). Your limit for 2024 would be $7000, but if you contributed $1000 or less, you could apply the 2022 and 2023 excess against the 2024 limit.  If you already contributed more than $1000 (in this example) you could remove the 2024 excess by the special procedure, even though it is too late to remove the 2022 and 2023 excess by the special procedure. 

If you still have an excess after filing your 2024 return, then to remove it in 2025, you just make a regular withdrawal of the excess amount.  This will be an "early" withdrawal under the regulations.  However, withdrawals of your Roth IRA contributions are always tax free, and withdrawals are always in the order of contributions first, conversions second, and earnings last.  (If you withdraw earnings, that is subject to regular tax plus 10% penalty.) As long as your total lifetime contributions (minus any prior withdrawals) is more than the amount of excess you need to withdraw, then the withdrawal will be treated as a withdrawal of contributions and will not be taxed.  And, there is no difference in whether you do that now or December, so you might as well put the money back into investments if you think you can earn something in the mean time.  

This is just a standard withdrawal, no special procedure is needed.  The IRA custodian will code it as an early withdrawal because that's all they know.  The details will get worked out on your 2025 form 5329.  You self-certify that you are withdrawing contributions and not earnings.   The IRS theoretically has the ability to double-check by looking at your record of contributions from the form 5498 they get, or if audited, you would show copies of form 5498 from various years to document that you are withdrawing contributions and not earnings. 

[Kmcg9]

Thank you for your response!

I added the full $6k in 2022 and $6.5k in 2023.  I already paid a penalty on my 2022 and 2023 tax returns (didn't notice in 2022, waited too long to fix 2023).  I made no contributions in 2024 and will have to check my income to see if I was allowed to.  If I was allowed, would there be some form to fill out with my bank to reclassify $7k for 2024 contributions, and is there a deadline to do this?  And if I am under again in 2025, could I potentially reclassify the remainder as a 2025 contribution?

And to clarify, if I do need to withdraw, am I stuck paying the 10% early withdrawal fee on my contributions, or is that just for earnings?

[Opus 17]

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@Kmcg9 wrote:

Thank you for your response!

I added the full $6k in 2022 and $6.5k in 2023.  I already paid a penalty on my 2022 and 2023 tax returns (didn't notice in 2022, waited too long to fix 2023).  I made no contributions in 2024 and will have to check my income to see if I was allowed to.  If I was allowed, would there be some form to fill out with my bank to reclassify $7k for 2024 contributions, and is there a deadline to do this?  And if I am under again in 2025, could I potentially reclassify the remainder as a 2025 contribution?

And to clarify, if I do need to withdraw, am I stuck paying the 10% early withdrawal fee on my contributions, or is that just for earnings?

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Roth eligibility is here.

https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that...

If you are eligible to contribute to a Roth IRA in 2024, there is nothing you do at the bank, it is all on the tax return.  I'm not exactly sure how to enter this situation because I haven't tested it.  I would start by running the IRA contribution interview, go into the Roth IRA section.  It should ask if you made any contributions in 2024, and if you had an excess from prior years.  Then it should be worked out on form 5329. (you can see the calculation yourself starting at line 19, https://www.irs.gov/forms-pubs/about-form-5329)

Then yes, if you are eligible to contribute for 2025 based on your income and other situations, and you contribute less than the maximum allowed, you could apply the remaining excess from 2022/2023 to the 2025 limit.

Withdrawal of Roth contributions is always tax-free, including penalties.  Whether or not you pay tax depends on your past contributions and withdrawals.  You contributed $12,500 in 2022 and 2023.  What are the total of your lifetime contributions, and have you ever made any previous withdrawals?  Even if these are your total lifetime Roth IRA contributions, if you never withdrew before, then the $12,500 you need to withdraw would be those contributions.  Or, if we suppose these are your only contributions, but you withdrew $2000 last year for an emergency expense, then your contributions remaining in the account are $10,500, so if you withdraw $12,500, $2000 would be considered earnings and subject to tax and penalty.