AGI too high for Roth contribution, options?

[Spencerpj12]

 I have a situation, answer not super clear. If you add to your Roth IRA, and turns out your AGI is too high (because of an unforseen event), I either must retract the Roth contribution (1099-R) or pay a 6% penalty. So my Question: Is this 6% penalty only this year, and If I don't contribute next year it will be considered they will just consider this years contribution rolled to next year? I don't mind paying the 6%, I have much better gains with it over last year than that. Thoughts?  Link to article that I'm uncertain about  https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-1099-r/happens-made-excess-roth-ira...

[DanaB27]

Yes, if you have a lot of gains then it could better to pay the 6% penalty on your 2024 return instead of withdrawing the excess plus earnings since the earnings are taxable in the year you made the contribution.

If you do not remove the excess plus earnings before the extended due date then you have these options to avoid the 6% for 2025 :

•  You could apply it as a 2025 Roth IRA contribution when you file your 2025 return if you are allowed to make Roth contribution for 2025
• You can take a regular distribution between October 16th and December 31, 2025 to remove the excess contribution without the earnings since it is after the due date of the 2024 return. 

Just make sure you have the excess resolved with one of these options or you will have to pay the 6% penalty again for 2025.

[Spencerpj12]

"You could apply it as a 2025 Roth IRA contribution when you file your 2025 return if you are allowed to make Roth contribution for 2025"

Does this just mean I insert I added $8k (that's the amount) next March 2026 when doing 2025 taxes, and actually don't add anything during 2025? Is it that simple?

[DanaB27 · Accepted solution]

Yes, if you are allowed to make Roth IRA contributions for 2025 you will just follow the steps below next year on your 2025 return and TurboTax will fill out Form 5329 to show the excess was resolved in 2025:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2024 (if it wasn't carried over).
6. On the "How Much Excess to 2025?" screen enter the excess contribution amount. 

[Spencerpj12]

Would you see any downside to this? I put the $8k in my Roth last March, the account for 2024 was up almost 20%, seems the 6% penalty is negligible.  (I really appreciate your help) 

[DaveF1006 · Accepted solution]

Yes, under those conditions, the 20% growth outweigh the 6% penalty. Many people choose to leave the excess in their accounts for growth purposes.