Tax implications for excess catch up Roth IRA contributions

[wylieed]

In Feb of 2025 I added catch-up contributions to my Roth IRA for 2024. When I did this I did not realize all my income for 2024 was unearned. I have requested that the money be removed by an IRA distribution from my account manager.

Will there be any tax implications?

[Opus 17 · Accepted solution]

It is too late to use the special procedure to remove excess funds.  The deadline for that was October 15, 2025.

You first need to file an amended 2024 return to report the excess contributions and pay a 6% penalty.

Then for 2025, you needed to make a regular withdrawal before December 31, 2025 (not a special withdrawal of excess contributions, just a regular withdrawal.).  Withdrawal of Roth contributions is not taxable, and withdrawing the excess contributions removes future penalties.  This gets reconciled on form 5329.

If you did not request the withdrawal until 2026, then you need to pay another 6% excess on the excess contributions that were carried forward on your 2025 return.  While contributions can be retroactive (within certain limits), withdrawals always happen on the date they happen.    (Or, if you had earned income in 2025, there might be another way to use up the excess in 2025 without a withdrawal, but you said you already made a withdrawal.  If you had earned income in 2025, ask for more details.)

[dmertz · Accepted solution]

The deadline to remove an excess contribution made for 2024 before the due date of your 2024 tax return, including extensions, was October 15, 2025.  Assuming that the corrective distribution is being made after that date, which seems to be the case, you are subject to a 6% excess-contribution penalty for 2024, reported on 2024 Form 5329.  If the excess was not removed form the Roth IRA before the end of 2025, you own another 6% penalty on the excess for 2025, reported on 2025 Form 5429.  (If you were eligible to contribute to a Roth IRA for 2025, some or all of the excess can be absorbed as a 2025 contribution, eliminating the need to remove that portion of the excess.)

Correcting the excess contribution after that date requires an ordinary distribution from the Roth IRA exactly equal to the excess, with no adjustment for investment gain or loss.  Because this distribution is a distribution of contribution basis, this distribution is not subject to any tax or penalty.