I contributed to a Roth IRA in CY2024 but had no income then withdraw it and earnings in CY2025

[meltonyus]

I contributed $3000 to a Roth IRA in CY2024.  It gained about $800 that year.  I had no earned or other income.  I did not file Fed income taxes in CY2025 since I had no income.   Then in July 2025, I withdrew the $3,000 plus $800 as an excess contribution.  I started contributing to a Roth IRA 1/1/2020 so through 12/31/2024, so I have been in a Roth for 5 years.  Questions on how to handle.

(1) Should I file my taxes for CY2024 and show no income (so I do not pay or receive from Feds)?  

(2) Do I submit form 5329 with the form1040 in 1 above?   On the 5329, do I report the $3,000 excess contribution withdrawal of $3000 and pay the 6% penalty, and then pay a10% fine on the excess withdrawal of the $800 in gains?  I read that if you have been in a Roth for 5 years you should not have to pay a penalty on the excess contribution.

(3) How do I handle 2025since I did not withdraw until 7/2025?  Advise and thanks.

[dmertz]

Because no 2024 tax return or request for extension was filed by April 15, 2025, the deadline to obtain a return of contribution before the due date of the tax return was April 15, 2025, not October 15, 2025.  This means that the distribution obtained in July 2025 does not qualify for treatment as a return of contribution before this deadline and instead constitutes an ordinary Roth IRA distribution, despite how the financial institution will report it on the 2025 Form 1099-R.  (The financial institution will have assumed that it would qualify as a return of contribution before the due date of the 2024 tax return and will code it as such.)  As a result, the $3,000 excess contribution is reportable on Part IV of a 2024 Form 5329 and a 6%, $180 excess-contribution penalty paid for 2024.

The $3,800 distribution will need to be reported on your 2025 tax return as an ordinary Roth IRA distribution by entering into 2025 TurboTax as substitute Form 1099-R in place of the code JP 2025 Form 1099-R that you will receive near then end of January 2026.  As an ordinary distribution, the $3,800 will be nontaxable either as a qualified distribution or as a distribution of contribution basis, depending on your age at the time of the distribution.  Your 2025 tax return will show on Part IV of Form 5329 the $3,00 excess being eliminated by the $3,800 distribution.  Filing a substitute Form 1099-R means that you will need to file your 2025 tax return on paper.

[Opus 17]

You need to file a 2024 return to report the ineligible contribution and pay the 6% penalty, even if you had no other income and owe no other taxes.  The penalty is not offset by your standard deduction or other deductions or credits.  

Then for 2025, you would report the withdrawal.  The $800 earnings will be taxable plus 10% penalty if you are under age 59-1/2. 

[meltonyus]

Your response as well as the one that followed yours match and I know what to do now.  Thank you very much for the help. 

[dmertz]

"The $800 earnings will be taxable plus 10% penalty if you are under age 59-1/2. "

Almost certainly not.  There will likely be no penalty because the distribution of the $800 will almost certainly be from Roth IRA contribution basis acquired from the permissible contributions made for earlier years.

Because the distribution does not qualify as a return of contribution before the due date of the 2024 tax return, there was no requirement to distribute attributable earnings.  Only the $3,000 needed to be distributed as an ordinary distribution.  Since the distribution occurred less than 60 days ago, you have the option to roll back to a Roth IRA the $800 distributed unnecessarily (although the financial institution from which the distribution was made might disallow the rollover if they believe that the rollover is a portion of the distribution that they believe qualified as a return of contribution before the due date of the tax return.)

[Opus 17]

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@dmertz wrote:

"The $800 earnings will be taxable plus 10% penalty if you are under age 59-1/2. "

Almost certainly not.  There will likely be no penalty because the distribution of the $800 will almost certainly be from Roth IRA contribution basis acquired from the permissible contributions made for earlier years.

Yes, sorry about that.  As long as there is prior contribution basis in the Roth IRA, the withdrawal won't be taxable (depends on your history of other prior contributions and withdrawals).