Need Help Reporting Excess Roth IRA Contributions from Previous Years

[jliangsh]

Hello,

I recently discovered that I accidentally over-contributed to my Roth IRA accounts. In 2021, I contributed $6,000 to both my Charles Schwab and Fidelity Roth IRAs—without realizing I had already maxed out with the first contribution. This means I exceeded the annual contribution limit by $6,000.

I’ve since contacted Schwab to remove the $6,000 excess contribution along with the earnings. However, since the excess remained in the account for multiple years, I understand I may owe a 6% excise tax for each year the excess contribution had been sitting in my account.

Here’s what I think I need to do, and I’d appreciate any confirmation or corrections:

1. File amended returns (Form 1040-X) for tax years 2021, 2022, 2023, and 2024.

2. Include Form 5329 for each of those years to calculate the 6% penalty.

3. Pay any penalties due.

My questions are:

• Am I missing any steps or forms in this process?

• Do I need to report the earnings on Form 5329, in addition to the excess contribution?
• Should I add the excess contribution and excess earnings back to my adjusted gross income on Form 1040-X?

• For this year (2025), do I need to report the removal of earnings, and how would I do that?

• I read that the IRS may waive the penalty in some cases if I provide a reasonable explanation. Has anyone had success with this, and how should I go about requesting the waiver?

Any guidance or shared experience would be greatly appreciated!

[fanfare]

For 2021 you can no longer remove the ccntribution plus earnings without penalty.

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after tax due date including extensions:

you distribute the excess amount being carried forward on 5329,
(or offset it with currently allowed contribution) .
Amended return(s) will be needed supplying that Form 5329 since there is a 6% penalty per year on accreting excess contributions .
Earnings stay in the Roth account.

Consult your custodian to obtain the correct removal form for this case.

--

By removing now (2025) your last penalty will be on 2024 tax return.

You can't get a waiver on the penalty for this scenario.

@jliangsh 

[fanfare]

If you have an available $4,000 contribution unused in any of those years, you can resolve the issue there and then by applying that amount. See Form 5329.

@jliangsh 

[Opus 17]

2021: file an amended return, report the excess contribution on form 5329 and pay the 6% penalty

2022: file an amended return, report the ongoing excess on form 5329 and pay the 6% penalty

2023: file an amended return, report the ongoing excess on form 5329 and pay the 6% penalty

2024: file an amended return, report the ongoing excess on form 5329 and pay the 6% penalty

2025: It is too late to use the special procedure to remove excess plus earnings.  You just have a regular withdrawal of whatever dollar amount.  When you report that withdrawal, it will also go on form 5329 and clear the ongoing excess balance.  The withdrawal itself follows the normal Roth IRA rules and it will not be taxed as long as the withdrawal is less than your combined historical contributions. 

[Opus 17]

As @fanfare  noted, if you contributed less than the maximum in any year since 2021, that can also be used to reduce the excess that you carry forward, that will all be accounted for on form 5329.

"I read that the IRS may waive the penalty in some cases if I provide a reasonable explanation."

I think that is unlikely here.  What you would be thinking about is if you missed the 2022 deadline to remove the 2021 excess due to a family emergency or other situation.  If you doubled your contribution for 2021 due to some confusion, a mixup with your finances, etc., you might be able to waive the penalty for 2021 if you have a good story, but I don't know if you can extend that for 5 years.  Eventually you have to be responsible for your own actions.

To request an abatement of the penalty you would use form 843. You file this on your own, it's not included with a tax return.  And you would not be able to file this until after you filed all the amended returns and pay the penalty.

https://www.irs.gov/forms-pubs/about-form-843

Note, that if you file amended returns showing that you owed $360 for 2021 (due April 15, 2022), $360 for 2022 (due April 15, 2023) and so on, and you pay those taxes, the IRS could come back and assess late fees and interest backdated to the date the payment was due.  That would be another opportunity to request a waiver or abatement of the penalty.

My suggestion would be to pay the $360 for 2021-2024, wait and see if you get assessed late fees, and then apply for a waiver/reduction all at once.  The IRS will usually forgive late fees for first-timers, but they can't waive the interest.  I think you will need a good story to also get the base 6% penalty reduced.  But good luck. 

[jliangsh]

Thank you. This is very helpful. Just to make sure I'm understanding correctly:

For years 2021-2024, is the 6% penalty imposed just on the excess contribution amount ($6000) and not the earnings?

For 2025, could you please clarify what you mean by "regular withdrawal of whatever dollar amount"? Do you mean the $6000 plus the earnings? I'm assuming my financial institution can provide me with the exact number. Should I report it now or wait until I file my 2025 tax returns in early 2026? I'm guessing the withdrawal needs to be shown on the 2025 form 5329. 

I'm also reading posts mentioning form 1099-R. Could you please provide some insights on that as well.

@Opus 17 

[jliangsh]

Thank you. I didn't see your reply until just now. This is very helpful. I will pay the 2021-2024 penalties as you suggested and see if there are late fees/interest.

If you could let me know what I should do for tax year 2025, I would be very grateful. Thank you.

@Opus 17 

[jliangsh]

@fanfare Thank you very much. Unfortunately I maxed out the Roth contributions every year, so I guess I couldn't carry it over.

By removing the excess contribution and the earnings, what steps do I need to take for tax year 2025? I understand I need to report the distribution on form 5329, but should I report it now or wait until I file the 2025 tax return (in early 2026)? Additionally, from what I'm reading in the community posts, there will be a 1099-R form from my financial institution. What do I need to do about that? 

[Opus 17]

@jliangsh 

For 2021-2024 you pay the 6% penalty on the excess contributions only.  You do not have to account for the gains in the account (so if you got more than 6% return, you come out slightly ahead).

For 2025, if you did not withdraw yet, you only need to withdraw the $6000 of contributions.  You don't have to account for the increased value.  That procedure only applies when you withdraw the excess before April 15 of the year after you made the excess contribution.  At this point you just have to withdraw the $6000.

You will get a 1099-R in January 2026 reporting the withdrawal for 2025.  Enter it on your 2025 tax return.  Since it is a withdrawal from a Roth IRA, it will not be taxable unless you are withdrawing more than your original contributions (normal Roth IRA withdrawal rules).   As long as you have been using Turbotax and you import the 2024 return with form 5329, Turbotax will automatically create a form 5329 showing that the $6000 withdrawal is a withdrawal of the excess that has been in the account.  If you have not used Turbotax before, you still need form 5329, you will have to read the instructions and pay attention to questions like "did you have any excess contributions on your 2024 tax return".)

[jliangsh]

@Opus 17 

Thank you very much for the detailed response. I have a few more questions about the process:

1. I read online that it’s generally allowed to amend tax returns up to three years after the original filing. However, my excess contribution was made in 2021, which is now more than three years ago. In that case, will the IRS still consider my amendment request?

2. I wasn’t able to figure out how to amend my return using the TurboTax app, so I’m doing it manually. I want to make sure I’m doing it correctly. For 2021, I filled out Form 5329, Part IV, lines 23–25. On Form 1040-X, I only changed line 10 (Other taxes), line 11 (Total tax), and line 20 (Amount you owe), along with an explanation. Am I missing anything?

Thank you again for your patience—I truly appreciate it!

[Opus 17]

The IRS will not pay any refund on an amended return filed more than 3 years after the due date, but they will always take an amended return to correct the records (and pay more tax).   Because 2021 is past the 3 year statute of limitations (originally due April 2022, expired April 2025), you could think about skipping the 2021 return and just listing the excess as a prior year excess on the 2022 form.  This would result in the excess just "appearing" in 2022 without indicating when the excess contribution had been made, but in theory it is too late for the IRS to audit you and assess penalties for 2021 (assuming you originally filed on time).   I suggest asking your own tax pro before you decide to skip 2021.  

Each form 5329 must be that year's form -- 2021 for 2021, and so on, check the date at the top.  Past year forms are here.

https://www.irs.gov/forms-pubs/prior-year

Check the instructions.  I believe you are correct that if the only thing you are changing is the penalty, you need the 1040-X and the 5329 but you don't need an entire 1040.  But I am not 100% sure since I have not personally experienced this situation. 

Mail each amended return separately, not all together.  

[jliangsh]

Thank you! This is all very helpful.

[jliangsh]

@Opus 17 

Thank you again for your detailed response, but it turns there's a further complication. Please bear with me.

I called my broker yesterday and it turns out that I made an excess contribution of $3000 in 2024 as well... From what I've read in the forum so far, I think I need to do the following.

1. Remove the$6000 excess contribution I made in 2021 without earnings. File amended tax returns for 2021-2024 and pay the 6% penalty ($360 each year). 

2. Remove the $3000 excess contribution that I made in 2024, with earnings, before Oct. 15, 2025 (the extended deadline). That way, I can avoid the penalty for the $3000 contribution made in 2024 (but not the $6000 contribution made in 2021, since it has long passed the deadline).

My questions are:

1. I filed the 2024 tax return by April 15, 2025, but didn't request for an extension. Can I still avoid the penalty if I remove the excess contributions before Oct. 15, 2025?

2. The earnings on the $3000 (2024 excess contribution) will be taxable. I will need to add the earnings to my 2024 AGI on form 1040-X. Am I understanding this correctly?

3. When amending the 2024 return, what would be the amount for total excess contribution? Is it $6000 or $9000? This is assuming I withdraw the $3000 contribution I made in 2024 prior to Oct 15, 2025.

4. When amending the tax returns for 2021-2023, do I just send form 5329 and 1040-X, and the payment? I saw in some other posts that 1040 Schedule 2 is also required. 

5. When amending the 2024 return, do I need to include form 1099-R, in addition to form 5329, 1040-X, and the payment? I read online that I can manually create 1099-R and ignore it (at least as far as the 2024 amended return goes) when the financial institution sends me the actual form in early 2026.

6. How about the 2025 return, then? What do I need to look out for?

Thanks again for your patience!

[Opus 17]

For tax year 2021, file an amended return and pay the 6%

For tax year 2022, file an amended return and pay the 6%

For tax year 2023, file an amended return and pay the 6%.  You will need the 2023 form 5329 when you work on 2024.

At this point, you need to make two separate withdrawals.  One withdrawal is a normal withdrawal of $6000.  No special procedure or special rules.   The other withdrawal is the $3000 of 2024 excess contribution plus net attributable earnings.

Then, file an amended 2024 return.  You will tell Turbotax that you had a carryover excess of $6000.  You will also tell Turbotax that you made a current year (2024) excess contribution of $3000.  Turbotax will ask, do you want to remove the excess plus earnings.  You will say yes.  You will then go to the section for 1099-R income and create a substitute 1099-R that will report the removal of $3000 excess plus earnings.  Box 1 is the entire amount of the withdrawal, box 2a is the taxable earnings, and use codes P and J in box 7.  

Your final amended 2024 return should include form 5329 that will show the $6000 carry forward excess, plus the 6% penalty, but it will not show the $3000 because that was timely removed.  Include “Filed pursuant to section 301.9100-2” as part of the reason for the amended return. 

Then, in January 2026 you should get two 1099-Rs from the Roth IRA, one for $6000 with code J or 1J in box 7, and the other for $3000 plus earnings with code PJ.  Enter the 1099-R for the $6000, but it will not be taxable since withdrawals of contributions are not taxable.  I don;t think you enter the 1099-R for the $3000 (because you entered that on your 2024 return), but even if you did enter it, the code PJ should tell Turbotax that it is not taxable on your 2025 return. 

[jliangsh]

Thank you! I truly appreciate your advice