Roth IRA Excess Contributions

[dylantfwc]

I already withdrew $12,000 and requested the return of excess for the remaining $935 so I hope that's ok. Do I file two form 5329's? One for 2021 and one for 2022? Or just one form for 2022 and that'll take into account the 2021 year too? I'm not sure if you're able to do both year penalties in one form or not.

My final question, I just opened a traditional IRA but it shows I've already done a max contribution of $6,500 for 2023. Because I withdrew the $12,000 and requested a return of excess for the remainder, am I able to contribute $6500 into my new Traditional for 2023? Or should I skip this year since I contributed into the Roth?

@fanfare @dmertz 

[dmertz]

You need to file a 2021 Form 5329 showing an excess contribution of $6,000 and a 2022 Form 5329 showing this $6,000 carried in from 2021 plus the $6,000 excess contribution for 2022 for a total excess of $12,000.  The actual amount of the penalty will depend on the timing of the contributions and the December 31 account value each year. 

The penalty is based on the amount of the excess contribution or the year end value of the IRA, whichever is less.  The amount of contribution for a particular year that is made after the end of the year by the due date of the tax return must be added to the actual year-end value, so if the $6,000 contribution for 2021 was made in, say, February 2022, the penalty is on $6,000 even though the actual December 31, 2021 value was zero.

Having made the $12,000 distribution first, it's not clear if the distribution of the remaining $935 constitutes a return of the entire $6,500 contribution made for 2023 or not.  I'm not aware of any IRS guidance on correcting excess contributions made over multiple years when the present value in the individual's Roth IRAs is less than the total of the excess contributions.

[fanfare]

According to Form 5329, the remainder of the $6,500, Line 24, will carry over to next year but won't result in additional penalty. 

That is to say, the only way  to clear Form 5329 is to become eligible for a Roth contribution and use that to offset the remainder.