What to do when you just realized you over contribute for your 2023 ROTH IRA?

[tax126]

When I filed my 2023 tax, I made a full contribution to ROTH IRA of $6500. I didn't realize that it was $3690 over the limit for that year. My 2023 tax, has form 5329 indicating it, and I paid the 6% additional tax for that year. I contacted Fidelity, and they said I have 2 options: withdraw the excess or apply the contribution to 2024. Which is the better option? I'm leaning toward applying the excess to 2024 contribution. (I checked my income for 2024 and I confirmed that I can contribute up to $7000 this year) Questions: - What do I need to do to get my tax squared away? Do I need to file an amendment for 2023? - I see form 5329 in my 2024 tax recognized the $3690 excess. Is that sufficient to correct the mistake? Do I need to pay additional tax & fees? - This also means I can contribute additional $3310 for 2024, correct? - I'm guessing Fidelity also need to do some paperwork to apply the contribution to this year?

[MinhT1]

You can use the excess contribution of 2023 as a contribution for 2024 and you do not have to pay the excise of 6% for 2024.

In TurboTax Online, you will proceed as follows:

1. Open your return and click on "Search" on the top right and type IRA contributions in the search box
2. Click on Jump to IRA contributions
3. Select “Roth IRA”
4. On the page Do you have any Excess Roth Contributions, answer Yes
5. On the Enter Excess Contributions screen, enter the total excess contribution from 2023
6. On the "How Much Excess to 2024?" screen, enter how much you want to apply to 2024.

You'll need to notify Fidelity that you have applied your 2023 excess contribution to 2024.

Please read this TurboTax Help article for more information.

[jox_tax]

Thank you MinthT1.  This looks pretty straightforward.  Besides the 6% tax I paid, I don't have to worry about other fees/tax?  Or the gain it accumulates?

[DawnC]

No, not once you notify Fidelity that you will apply the excess to 2024.   Once you enter that (as Minh describes above), Form 5329 will be removed.  You paid the tax for tax year 2023, so you don't need to amend.  

[fanfare]

Typically, if you're not eligible for a contribution in 2023 due to income, you're not eligible in 2024 either.

====r

eturn of excess contribution:

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 each case.

@jox_tax 

[jox_tax]

Thanks fanfare, but I confirmed that my income is much less this year.  Last year was just an exception.