TT incorrectly owe a penalty for excess contribution to traditional IRA, but this was due to a previous year's contribution. How do I correct this?

[yam-potatoes]

I contributed $7K for 2024 and $6.5K as a late contribution for 2023 (in April 2024). TT says I owe a 6% penalty each year this money remains in the IRA. I already converted all of my money in the traditional IRA to Roth IRA. How do I correct this and ensure I don't owe a penalty?

[MindyB]

In order to correct this, don't enter the 2023 late contribution on your 2024 tax return as a contribution. For the 2023 tax return, you should have prepared a Form 8606 - check your tax return to verify you did.  If not, you can do so now.  There may be a $50 late fee assessed unless you have cause.  See: About Form 8606, Nondeductible IRAs to get a pdf form and fill it out, if needed.

Next, since the conversion for both years happened in 2024, it is correct that they were both reported to you on the 2024 1099-R.  In order to ensure no tax is computed on the conversion, since you did not deduct them in the first place, after you enter the 1099-R, continue through the interview until you are asked f you moved the money through a rollover or conversion. Answer that you converted (all of it) to a Roth IRA.

[yam-potatoes]

Thank you for the quick response!

> In order to correct this, don't enter the 2023 late contribution on your 2024 tax return as a contribution.

Where does this get entered so I can be sure it's not included here?

>For the 2023 tax return, you should have prepared a Form 8606

Yes, I did prepare an 8606 for 2023 tax year

> f you moved the money through a rollover or conversion. Answer that you converted (all of it) to a Roth IRA.

Yes, I already answered it this way.

Thanks again for your help!

[fanfare]

what year did you convert? 2025? you can't avoid the penalty.

2024? Your penalty is zeroed when you tell TurboTax your IRA balance at year end was Zero.

@yam-potatoes 

[yam-potatoes]

I contributed and converted in 2024. I told TT that the balance in my traditional IRA at the end of 2024 was $0, but it says that I will owe a penalty

[fanfare]

Unless you made in 2025 another contribution for 2024, that's a bug in TurboTax (unlikely?).

@yam-potatoes 

maybe you have a penalty for something else.