Withdrew excess contribution to from Roth IRA mistake code

[pbartoli]

@fanfare 

This makes sense. Thank you!

[pbartoli]

I'm just going to recap for my own mentals and to maybe help anyone else who runs into this or a similar problem in the future. 

Me

1. File amended 2023 (wait to step 4) according to the 1099R received for me. I will need to pay taxes, through the amended filing, on the earnings of the withdrawal.

2. Because the earnings will cause a lower Roth IRA limit, I have a new excess contribution. 

3. Address this by removing it in 2024 (the subsequent year). Unfortunately this will cause a 6% fee on the "new" excess contribution.

4. This will be paid through a 2023 5329, showing the sum of $130 in line 23 and line 24.

5. Calculate additional tax and pay it along with the amendment.  

6. Also file 2024 5329, putting the 130 in line 18, then the distribution (taken before April 15 2025) in line 20, which should result in -0- from lines 22-25. 

5. Case closed. 

Spouse

1. Do NOT include 1099R in 2023 amendment because the withdrawal happened after the 2023 filing deadline. You will need to file a 2023 5329, however.  

2. File 2024 1040 with 1099R as it is issued. 

3. File 5329 for both 2023 and 2024. This means that for the 2023 amendment, form 5329 (year 2023) will include your excess contributions in line 23. Fill out the form, and see the calculations for the 6% tax. 

4. Include whatever additional taxes are needed in your 2023 amended return (1040x)

5. For 5329 (2024) include the excess (now on 2023 5329 line 25) in line 18. Then fill out the rest of the form as instructed, making sure to include the distribution you took in line 20. 

6. If this is done correctly, you should have a -0- in lines 24 and 25, meaning no more excess contributions. 

7. Case closed. 

N.B. Will also need to file 2024 form 8606 (one per person, per instructions) to clear up, both, the $130 distribution for me and the $2000 for wife. 

@fanfare 

@DanaB27 

[pbartoli]

Some edits..

Step 3 in "Me." 

Distributing the $130 will not "cause" a 6% fee, so much as the 6% fee simply must be paid to account for the excess contribution that was not withdrawn on time and will paid now upon discovery.

Step 4 in "Me" and step 3 in "spouse"

The 2023 5329 should be submitted with the 1040x amendment for 2023.

Step 6 in "Me" and steps 2&5 in "spouse"

maybe it's obvious, but 2024 5329 should be filed with the 1040 for 2024. 

[DanaB27]

You

Steps 3 and 6 Yes, you can request the return of a $130 2024 contribution plus earnings and then apply the $130 2023 excess contribution as a 2024 contribution. You should show $130 on line 19 of the 2024 Form 5329.  Lines 20 and 22-25 will be empty/$0. You will not have the 6% penalty on your 2024 return, but the earnings will be taxable in 2024. 

The earnings from the returned 2024 contribution will be taxable in 2024. If you are in the phaseout range for Roth IRA contributions this could cause another excess contribution. You should get a 2025 Form 1099-R with codes P and J if you request the return of the 2024 contribution plus earnings.

You will enter $6,870 as Roth IRA contribution for 2024 in the IRA contribution interview ($7,000 - $130 that you withdrew by the due date).

Or a simpler way, you can take a regular distribution of $130 without earnings in 2025 and pay the 6% penalty again on your 2024 return since the 2023 excess wasn't removed by December 31, 2024. You will get a 2025 Form 1099-R with code J in 2026 and when you enter it on your 2025 return it will resolve the excess contribution. 

Yes, all the steps are correct for your spouse.

[Edited 4/12/2025 | 3:20 am PST]

@pbartoli 

[fanfare]

"You could request the return of excess contribution plus earning for the 2024 contribution in amount of the new excess contribution since you contributed already the full amount for 2024. Then you would be able to apply this new excess from 2023 to 2024. In this case you would only pay the 6% penalty on your 2023 return."

OK but this is a complex solution. Not recommended.

My solution is much simpler. Just take out the $130 now and be done with it. There is no 2024 penalty

No wonder you're confused.

@pbartoli 

[fanfare]

"You will enter $6,870 as Roth IRA contribution for 2024 in the IRA contribution interview ($7,000 - $130 that you withdrew by the due date)."

If that 130 earned any money, that just puts you in the same boat for 2024 as you are in for 2023. an additional excess will appear.

Moreover, that means you won't have 130 2024 dollars available to offset 130 2023 dollars.

This is a bad solution unless you take out extra such as $150 or $200 as a cushion.

It is still complex but more so.

@pbartoli 

@DanaB27