I have made excessive Roth IRA contributions for numerous years. Are the 6% penalties assessed on Jan 1 2025 for each or after the April 15 2025 Tax filing deadline?

[Opus 17]

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@fanfare wrote:

@dmertz    --

If you submit today a 2005 1040-X with a 6% additional   tax on 2005 Form 5329 Line 25,

is the IRS going to hit you with late payment interest on the amount on 2005 Form 5329 Line 25  ?

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Yes, that's the problem with the penalties and interest.  There is a penalty of 0.5% per month of the amount not paid, and interest which is a variable rate that has been as low as 3% and is currently around 8%.  The penalty is capped at 25% in most cases, but the interest is not.  For the 2006 penalty of $240, there is a minimum penalty of $60, plus interest (lets assume an average APR of 5% just for simplicity) back-calculated to April 15, 2007.  The total debit is about $600, $240 of tax and $360 of interest and penalties.  Then for the 2007 penalty of $720, there is a minimum of $180 penalty plus interest back-dated to April 15, 2008. And so on.  The interest is significantly more than the actual amount of penalties.

[Opus 17]

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@gday111 wrote:

My Roth IRA is worth $179K as of today. I am going to look at my yearly Contribution notes tonight and create a chart as Opus17 suggested. His calculations are probably pretty correct because as I stated I made the Maximum Yearly Contribution to my Roth for at least the last 18 years and I exceeded the Income limitation for most of them. 

Reopening this conversation really makes my head hurt but I thank you all for you input. I need to address this catastrophe. Not a Happy Retirement payoff for me.

Thanks Fanfare

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Again, see a professional.  It is possible that if you withdraw the entire amount, pay income tax and a 10% penalty on the $77,000 of earnings, and lay low for 6 years, you can avoid any consequences.

Otherwise, the late payment penalty (0.5% per month back dated to when you should have paid the tax) plus interest (3-8% APR backdated to when you should have paid the tax), probably double the actual amount of tax you owe (which I estimated at $57K).  You could make an offer in compromise, and keep some of the account, or roll the dice, lay low, and wait for the 6 years to pass.

As far as insurance, that would also be a question for a tax professional.  You don't even know if your tax preparer had insurance when he prepared your returns, or who the carrier is.  Did he have a partner or successor who took over his clients?  Another tax pro in your state would know if it is possible to access that information.