Overcontribution to ROTH IRA 2 years ago

[rbtaxq]

Hi,

I realized in February 2025 that I overcontributed to my ROTH IRA and my husband's ROTH IRA in 2023.  I have already filed my 2023 tax returns.   I will be withdrawing the full overcontribution amount ($6500 from my Roth and $6500 from my husband's ROTH).    I know there is a 6% penalty and I need to file a 5329.  My question is do I also file an amended 2023 tax return to pay tax on the earned  income for the excess contribution?  We also overcontributed in 2024. I have not yet submitted those taxes so I know I can (and have) withdrawn the excess and calculated the NIA and paid tax on those earnings.  But it is unclear to me if I do the same for 2023.  The 6% penalty seems very low so imagine that I need to pay some kind of interest or tax on the earnings accumulated?  Should I file an amended 2023 tax return and report those earnings on the 1099-R just like I am doing for 2024? Or how else do I report them?

Also - on my 2024 tax return, once I have fixed 2023 can I then say that I did NOT overcontribute in any prior years?

Thanks

[dmertz · Accepted solution]

"do I also file an amended 2023 tax return to pay tax on the earned  income for the excess contribution?"

No.  Because the corrective distribution is being made after the due date of your 2023 tax return, the corrective distributions need to be regular distributions of exactly $6,500 each, with no adjustment for earnings.  The earnings are permitted to remain in the Roth IRAs when the excess is removed after the due date of the tax return.  Tell the financial institution nothing about this distribution being to correct an excess contribution, otherwise they might mistakenly try to process the distribution as a return of contribution before the due date of the tax return.

2024 is different because you are removing the 2024 contributions before the due date of the corresponding tax return.  In the 2024 case, earnings are required to be distributed and the are taxable on your 2024 tax return to avoiding the 6% excess-contribution penalty on the 2024 excess contribution.

Because the excess contributions made fore 2023 were not corrected before the end of 2024, you must still show those as overcontributions for prior years when preparing your 2024 tax return.  With the 2024 excess contributions corrected before the due date of the tax return, only the excess contributions made for 2023 will remain on your 2024 tax return to be subject to the 6% penalties on 2024 Form 5329.  Those penalties will disappear on your 2025 tax return when you report the regular distributions.

[rbtaxq]

Amazingly  helpful. THank you.   One last question your answer brought up - for 2023 you said not to tell my financial institution about the withdraw of the overcontribution. Does this mean I just remove it from the ROTH via a transaction online that I do myself to one of my other accounts? Won't this show as an early distribution since I am below the age at which I can take money out of my ROTH and have it's own penalty?   My understanding is the financial institution can use a special form to show this was an overcontribution?  Thanks again -so helpful!

[DanaB27]

Yes, you will take a regular distribution since it was after the due date and you can do this online.

You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. 

Next year when you enter your 2025 Form 1099-R:

1. Login to your TurboTax Account 
2. Click on "Search" on the top and type “1099-R” 
3. Click on “Jump to 1099-R” and enter all your 1099-Rs
4. Click "Continue" on the "Review your 1099-R info" screen after you entered all you Form 1099-R
5. Answer "Owned Any Roth IRA for Five Years?" screen
6. Continue through the questions and make sure you enter the net contributions prior to 2025 on the "Enter Prior Year Roth IRA Contributions" screen (include the 2023 excess contribution).

[rbtaxq]

Sorry why would I get a 1099R for the 2023 withdraw since I am past the due date? I know I will get one for 2024 (though will report that the earnings this year) but am unclear why I would get a 1099 R in 2025 for the 2023 withdraw? I thought I would simply pay the 6% excess tax per year and be done?  Thanks. 

[DanaB27]

Generally, you will get for all your retirement distributions a Form 1099-R. When you take a regular distribution for the 2023 excess contribution amount in 2025 from you Roth IRA then you will get a 2025 Form 1099-R with code J in 2026. This form will be entered next year on your 2025 tax return and this will resolve the 2023 excess contribution as dmertz mentioned in his reply.

Yes, you will also get a 2025 Form 1099-R with codes PJ for the removal of the 2024 excess plus earning and this will be reported on your 2024 tax return:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2024?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
11. On the "Which year on Form 1099-R" screen say that this is a 2025 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and answer all the questions.
13. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2023" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2024.

[rbtaxq]

Thank you so much. Thanks to you both I think I am clear.

For 2024

• Remove the excess contribution and the earnings
• Report the earnings on (a fill in myself) 1099 R using codes J and P (I thought 8 and J so thanks for that note)
• Only "penalty" is paying taxes on earned income
• Include in 2024 taxes the overcontribution in 2023 to pay for overcontribution (for final year)
• Next year (2026) I will receive a 1099R for 2025 that I can disregard (J and P will be marked) for the 2024 earnings

For 2023

• File a 5329 paying 6% penalty for two years (2023 and 2024)
• Next year (2026) I will receive a 1099 R with code J marked
• File the 1099-R with my 2025 taxes and that will include any other fees/penalties from the 2023 over contribution and I am done

I think that's what I took from all this. Thank you so much!