Roth question

[Odin1970]

The context: 2023 and 2024 my wife and I filed married filling separately. We both contributed to individual Roth IRA's in those tax years. We lived together for those filling years. We were both over the income threshhold, We know this is considered excess contributions for those tax years. We did not report the contributions in those tax years. 

The question: Do we have to do amended returns for those tax years?  Or can we remedy these prior year excess contributions with the 2025 filing and remit the penalty on the 2025 return? 

[Opus 17]

All of the above.

If you have excess contributions for 2023 and 2024, you must each report those excess contributions and pay the 6% penalty.  If you did not report the excess and pay the penalty, you must each file your own amended returns for 2023 and 2024 to include form 5329 and pay the penalties.

Then for 2025, it is too late to use any kind of special procedure to remove the excess, so you have to pay the penalties again.  Each of you will file a separate form 5329 for your personal situation (your joint return will include two copies of form 5329, one in each spouse's name.)

Then sometime during 2026, you can make a regular withdrawal of the excess contributions.  You do not have to withdraw the earnings, just the contributions.  This is a regular withdrawal, not a special withdrawal of excess contributions.  Because it is a return of contributions, it won't be taxed.  Then you will include two copies of form 5329 on your 2026 tax returns to remove and resolve the penalties.

Two additional notes:

1. If you file jointly for 2025, and you made allowable Roth IRA contributions, you have the option to remove them, and then your 2025 limit can be applied to the excess carryover from 2023 and 2024.  For example, if you have $13,500 of excess contributions, and you are eligible in 2025 but make no new contributions, you can apply $7000 of the excess toward your 2025 limit, meaning that the 2025 penalty will be figured on the remaining $6500 of carryover excess.  Then in 2026 you can either withdraw that excess or use it up by applying it to your 2026 limit.

2. If you would be eligible if you had filed jointly, you could amend your MFS return to MFJ. This would make the contributions allowable (probably) and there would be no penalties owed.  The IRS will allow you to amend from MFS to MFJ.  However, I presume there was a good reason for filing separately, so you should consider whether these penalties offset the other benefits of separate filing.  Amending from MFS to MFJ requires special instructions, let us know if you want more information, and if you used Turbotax for those years or not. 

[Odin1970]

Hello, 

Thank you for the detailed reply. We are considering amending the prior year returns to MFJ, that is probably the easiest option, for now, we need to look at the income though. So my only question now is the timing of each filing. Meaning, when we decide how to handle the prior year amended returns, in what order should the filings be done? 

I am looking at each year as a separate task/transaction and it looks like I would do them in order. Meaning I would decide how to handle 2023, do the filing (electronically through turbo tax). Which would inform the 2024 amended return, which would then inform the 2025 current filing. 

Is my logic correct? 

[Opus 17]

@Odin1970 

If you have used turbotax in the past and still have your files or access to your account, it would be easiest to do it in order.

To amend your MFS returns from 2023 to joint, you pick one of the MFS returns, change the status to joint, and add all the other's spouse's income and deductions.  When that return is submitted, it will automatically cancel the other MFS return.  You have to be careful about how you report tax payments and refunds, so the adjustments come out correctly.  See this FAQ.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/amend-tax-return/amend-married-filing-se...

For 2024, you will not use the amended 2023 joint return as a base, you will again pick one of the MFS returns and amend it to joint.  It would be best to use the same spouse as the #1 spouse on the amended return.

Then for 2025, you can start by using the amended 2024 joint return as the base. 

[Odin1970]

Thank you so much for taking the time to reply and thoughtful response I really appreciate it. 

So my last question is, well more of a scenario (please let me know if this is viable). 

Both my spouse and I complete F5329 forms for the tax years that we had the excess contributions and pay the 6%. For the 2025 filing we can mitigate the prior year contributions before 4.15.26 by pulling that money out, which would negate the penalty for 2025. 

So the question now is, are the prior year excess contributions and their removal tied to the calendar year ending or the tax year filing date? If its the filing date, I can get get those contributions out so the 2025 6% penalty would not apply, if I am understanding the code correctly.