Return of Excess for IRA

[leesmithsmail]

I contributed in 2024 for 2023 and 2024 maxing out both years. I have gains from these contributions. TurboTax advised I need to remove everything from the IRA (I had no money in it prior to this). TurboTax advised split the gains (NIA) for both years on Return of Excess form. My brokerage approved 2024 Return of Excess, but keeps rejecting 2023. I haven’t received a clear response from brokerage as to why it’s rejected. The 2023 contribution was made on 2 different days 4/30/2024 ($3,200) and 5/1/2024 ($3,800). Do I fill out two forms for each contribution or one form for the $6500 plus NIA? Is there a reason my brokerage can’t remove the NIA for that year, 2023? What actions are needed to resolve this issue?

[fanfare]

"The 2023 contribution was made on 2 different days 4/30/2024 ($3,200) and 5/1/2024 ($3,800)."

That's not allowed.

After 4/15/2024 your contribution is assigned to 2024.

You don't have any 2023 contribution, so that's why broker rejects your request.

@leesmithsmail 

[leesmithsmail]

My apologies that was a typo. My 2024 contribution was on those days. As I had stated earlier though, my 2024 return of excess was approved. My 2023 was rejected. My 2023 contribution was $6500 done January 21, 2024. 

[fanfare]

The broker seems to be applying this rule:

After Tax Day for 2023, April 15, 2024, you can't request return of 2023 contribution plus earnings.

Instead request a distribution of the disallowed contribution.

Earnings, if any, remain in the IRA.

You will pay a 6% penalty yearly on a 2023 contribution left in the IRA at year end.

Amend your 2023 tax return, (and 2024 if already filed) to report the accrued excess and the penalty.

Maybe @dmertz has another way out for you.

@leesmithsmail 

[dmertz]

The deadline to obtain a return of the excess 2023 contribution was October 15, 2024, provided that you files your 2023 tax return or requested a filing extension by April 15, 2023.  As fanfare said, after that date you are subject to an excess contribution penalty on the 2023 excess for 2023 and 2024.

The excess 2023 contribution can now only be corrected by either applying it as a contribution made for 2025, if eligible, or by an ordinary distribution equal to the amount of the excess 2023 contribution; no investment gains on this are to be distributed.

If the 2023 excess is distributed in 2025, it will be reported on line 12 of your 2025 Form 5329 to be subtracted from the amount on line 9, reducing the excess on line 14 to zero.  When entering the 2025 Form 1099-R into 2025 TurboTax, you'll need to enter a zero in box 2a of TurboTax's 1099-R form to indicate to TurboTax that this is a distribution of the excess after the due date of the 2023 tax return.  This will cause 2025 TurboTax to treat the distribution as nontaxable and to prompt you for the required explanation statement.

[fanfare]

You should not have to amend your 2023 return, since the money was not in the account at year end 2023.

@leesmithsmail 

[dmertz]

"You should not have to amend your 2023 return, ..."

Other than to file 2023 Form 5329 to report the excess contribution made for 2023 and to pay the 6% penalty if you have not already done so.

[fanfare]

That doesn't seem right, since the money was not in the account at year end 2023.

@dmertz 

@leesmithsmail 

[Opus 17]

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@fanfare wrote:

That doesn't seem right, since the money was not in the account at year end 2023.

@dmertz 

@leesmithsmail 

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Read form 5329.  The 2023 form says "Excess contributions for 2023 (see instructions)".   If you make a contribution for 2023 during the first months of 2024, all the consequences are also reported on the 2023 tax return.  

[fanfare]

Okey dokey

@Opus 17