Ineligible Roth Contributions

[Eyeman2]

I have been making ineligible contributions since I believe 2019. In 2021 I rolled over a Cash Balance Pension plan into my Roth IRA. In 2022 I moved the whole Roth IRA to a different investment firm, I did not contribute to this account after that. My questions is if I just withdraw the money instead of recharacterization what are the differences in taxes or penalties I am looking at?

I did make contributions to a Fidelity Roth IRA in 2023 and 2024 that I plan on just re-characterizing.

[dmertz · Accepted solution]

As with excess contributions made prior to 2023, it's too late to recharacterize or obtain a return of contribution before the due date of the tax return, including extensions, for a 2023 excess contribution.  You'll need to correct that excess contribution by obtaining a regular distribution from the Roth IRA equal to the excess, with no adjustment for earnings.  You'll need to pay the 6% penalty on this excess for 2023 and 2024.

[Eyeman2]

Thank you for your help.
What do I need to do about the contributions made prior to 2023?

[dmertz]

Those would also have to be corrected by obtaining a regular distribution of exactly the amount of the excess.

The rising excess in Roth IRA contributions from 2019 through 2023 should be present on 2019 through 2024 Forms 5329 and the 6% excess-contribution penalty paid for each year.  By making a distribution in 2025 of the total amount of the excess, this distribution will appear on your 2025 Form 5329 to be subtracted from the total excess carried in from 2024, reducing the excess and penalty to zero for 2025.  Even though these contributions were excess contributions, they added to your Roth IRA contribution basis, so the distribution of the total excess will be nontaxable.