How do I fix an incorrect 2023 Back-Door Roth IRA Contribution that includes an Excess Contribution?

[darylwalker1]

1. Background - I have historically been doing ‘back door’ Roth IRA contributions because my wife and my income exceeds the limits to make a direct contribution to a Roth IRA (we file married filing jointly).  The back door is done by moving after tax money into my traditional IRA Fidelity account and then converting to my Roth IRA Fidelity account. 

The tax forms historically received related to these back door Roth IRA Contribution include the following:

a.  Form 1099-R for my traditional IRA distribution (e.g., conversion) from the traditional IRA to a Roth IRA.  Box’s 1a and 2a both equal the distribution amount (e.g., $7K for 2022), with Box 7 including a Distribution Code of “2” which is “Early distribution, exception applies (under age 59.5)”

b. Form 5498 – Indicating (among other items) the Traditional IRA Contribution amount (e.g., $7K for 2022).

2.  Incorrectly doing back door Roth IRA contribution in 2023

In 2023, I intended on doing a back door Roth IRA contribution, but I made an inadvertent error and I believe I made an excess contribution of $800 to my Roth IRA.  I could use help with the following:

1. Determining if I need to file an amended 2023 Tax return, and if so, how I’d do this in TurboTax, related to my $800 excess contribution I believe I made to my 2023 Roth IRA.
2. Determining what I need to do on my 2024 Tax Return in TurboTax related to making the excess contribution of $800 to my 2023 Roth IRA.
3. Making sure the Form 5329 is properly completed in TurboTax related to penalties owed on my excess contribution of $800 made to my 2023 Roth IRA
4. Anything else I am not properly thinking through.

3.  Timeline, etc. - The following provides a timeline of key events, etc.:

2023 Roth Contribution

1.  March 13, 2023 - I inadvertently contributed $7,500 of after tax money directly to my Roth IRA, when I meant to (like I have done in previous years) first contribute $7,500 to my traditional IRA and then do a Roth IRA conversion (i.e., back door Roth IRA Contribution). 

2.  Jan 22, 2024  – After discovering my error, I did a recharacterization of my 2023 Roth IRA Contribution to a Traditional 2023 IRA Contribution. 

The amount that was recharacterized was $8,300 ($7,500+ $800) in gains.

3.  Feb 9, 2024 – I converted $8,300 from my traditional IRA account to my Roth IRA account.   I believe at this point I made an $800 excess contribution to my Roth IRA, and therefore should have taken a distribution from my Roth IRA, but I didn't.  

4.  2023 Tax Filing

a. Since I did not make a distribution from my traditional IRA in 2023 for the Roth Conversion, I did not receive a 1099-R distribution for my traditional IRA in 2023 to file with my 2023 tax return, like I typically received in prior years when I properly performed a back-door Roth IRA conversation.  (Instead, I received a 1099-R for my traditional IRA in 2024 to file with my 2024 tax return (discussed below)).

b. The following are relevant TurboTax fields I completed for my 2023 tax return:

Screen 1

Screen 2

Screen 3

c. Excess Roth IRA Contribution – I believe that I contributed $800 more to my Roth IRA than I should have ($8,300 less $7,500).  Note the following guidance, where a penalty is owed on excess contributions with a Form 5329 filing.  Note that did not complete a 5329 filing in 2023 and have not pay a penalty.

Q: Do I need to amend my tax return for excess Roth IRA contribution?

A: If your total IRA contributions (both traditional and Roth combined) are greater than your allowed amount for the year, and you haven't withdrawn the excess contributions, you'll owe a 6% penalty tax on the excess contribution and you must complete Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and ...

2024 Taxes

d.  I received the following 2 relevant 1099-R Forms to file with my 2024 Tax Return:

i.  Roth IRA 1099-R, with boxes 1 and 2a including $8,300 and zero, respectively, with box 7 distribution code marked with an “R” which is “Recharacterized IRA contribution made for 2023 and recharacterized in 2024”. 

ii.  Traditional IRA 1099-R, with boxes 1 and 2a including $8,300, with box 7 distribution code marked with a “2”, which is “Early distribution, exception applies (under age 59.5)”. 

e.  I plan to take an excess distribution of $800 + $30 in gains, before I file my 2024 tax return.

5.  TaxAssistance – As noted above, I could use assistance:

1. Determining if I need to file an amended 2023 Tax return, and if so, how I’d do this in TurboTax, since I believe I made an excess contribution to my 2023 Roth IRA in the amount of $800.
2. Determining what I need to do on my 2024 Tax Return in TurboTax related to my error where I believe I made an excess contribution to my 2023 Roth IRA in the amount of $800
3. Making sure the Form 5329 is properly completed in TurboTax related to penalties owed on my excess contribution that I believe I made to my 2023 Roth IRA in the amount of $800.
4. Anything else I am not properly thinking through.