Made an excess Roth contribution in 2022. Just now discovered it while doing 2023 return. What is easiest and cheapest way to fix this.

[harrisbmo]

I know excess needs to be removed but can it be applied to 2023 without the 6% penalty.  Do I need to file an amended 2022 return since I never entered the contribution in the first place, otherwise TT would have told me over the income limit.  Got the 5498 for 2022 showing the contribution though.

[fanfare]

According to IRS instructions, there's only one way to fix this.

return of excess contribution:

after tax due date including extensions: you distribute the excess amount being carried forward on Form 5329,
(or offset it with currently allowed contribution) .
An amended return will be needed supplying 2022 Form 5329 since there is a 6% penalty per year on excess contributions .
Earnings stay in the Roth account.

@harrisbmo 

[harrisbmo]

So the $6,000 2022 contribution essentially becomes a 2023 contribution and still leaves $500 for 2023 since the max went up.  Filing the amended 2022 return with 5329 just covers the 6% penalty and I can avoid having to deal with the 1099-R's for distribution and earnings?  

[fanfare]

See 2023 Form 5329 Line 18 for Roth IRAs.

If you are not allowed to make a Roth IRA contribution for 2023,

you can't offset your excess and you will pay yearly penalties until you distribute it..

Earnings stay in the Roth IRA.

[fanfare]

you have to ask for a straight distribution, not a "return of excess plus earnings".

@harrisbmo 

[harrisbmo]

MAGI is less for 2023 so a contribution is allowed.  

[DanaB27]

Yes, if you can make a Roth IRA contribution for 2023 then you can apply the excess to 2023 and resolve the excess contribution. Then you do not need to pay the 6% penalty for 2023 and you do not need request a distribution of the excess.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2022 (if it wasn't carried over).
6. On the "How Much Excess to 2023?" screen enter how much you want to apply to 2023.