1. When you make a withdrawal from a Roth IRA, you get a 1099-R that you must report on your tax return. As mentioned, withdrawals of contributions are tax-free. If you are under age 59-1/2, withdrawal of earnings are subject to income tax plus a 10% penalty. Your tax software will ask you about prior contributions and prior withdrawals, to be able to calculate how much is earnings subject to tax.
Interestingly, I think that if you completely withdrew ALL Roth IRA funds and paid the tax and penalties on any earnings, that might start a final 6 year clock on audits, since your 2025 and future returns would not be carrying over any incorrect facts. But I am not a lawyer or CPA.
2. Probably not. You can't really negotiate a settlement without knowing your exposure, and I don't think the IRS would accept an offer without themselves calculating it themselves to know what they are giving up. So you would also want your own calculation.
You can do this manually, since you would only need to calculate form 8606 and form 5329 for each year. You can download prior year forms and instructions from the IRS web site. That won't include interest and penalties, but you could probably determine the base amount of the 6% penalties without too much trouble.
In fact, if you don't have any withdrawals, you probably don't need the exact forms. Your calculation might look something like this.
| Year |
Excess contribution |
Cumulative Excess |
6% penalty |
Cumulative penalty |
| 2006 |
$4000 |
$4000 |
$240 |
$240 |
| 2007 |
$4000 |
$8000 |
$480
|
$720
|
| 2008 |
$5000 |
$13,000 |
$780 |
$1500 |
| 2009 |
$5000 |
$18,000 |
$1080 |
$2580 |
| Etc. |
|
|
|
|
Of course, this assumes that you were never eligible, you contributed the maximum, all your contributions were excess, and you never made conversions and withdrawals. If your situation is more complicated you might need to use the forms. But I think that before you contacted the IRS (on your own or via a tax professional), you need at least an estimate of your exposure.
3. Not an attorney, but if you completely cashed out, paid tax and penalties on the earnings, that might start a final 6 year clock on audit issues.
4. If you do the rough calculation (which ignores penalties and interest), you can then decide whether you want to risk doing nothing, or at least talk to a professional about whether you should approach the IRS for an offer in compromise.
https://www.irs.gov/payments/offer-in-compromise
It doesn't appear you would be eligible to request an offer in compromise until you filed all the amended returns to document the amount you owe (which I suggested in #2). If you have copies of your tax returns from all those years, it might not be too hard to prepare the amended returns manually. One thing I would not do is contact the IRS before you have an idea of your exposure and a legal consultation.
