Question

Excess Roth IRA Contribution Removal for tax years 2022 & 2023

Forum|Forum|2 years ago
May 8, 2024
1 reply
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Both my wife and I had excess Roth IRA contributions for tax year 2022 as follows:

Excess contribution - Self: $7000
Excess contribution- Spouse: $4476

I removed the excess contributions for 2022 this year in April 2024. Per my broker, as it was past the tax deadline (including extension) of Oct 15, 2023, I just need to remove excess contribution and pay 6% penalty on excess before Oct 15, 2024, tax deadline, which I plan to do shortly.

Further for tax year 2023, I again had excess contribution of $7500 in my account and $207 for my wife's Roth IRA. which I removed before tax deadline (including extension) of Oct 15, 2024.

Now all the excesses having been removed both for 2022 and 2023, my following questions relate to how to report removals and any associated penalties.

Q.1 Do I have to file amended tax returns for 2022 or just paying penalty on forms 5329 for my wife and myself sufficient? It is being suggested by certain sources online that I have to file amended tax return for 2022 and forms 5329 even when nothing is to be amended on my return itself, which does not make whole lot of logic. So, if I submit forms for myself and my wife with penalties to IRS, would it be meet IRS requirements?

Q2. For 2023 removals, since excess removal is considered distribution in the year it is removed (2024 in this case) and would be reported on 1099X by my broker in 2025, do I need to do anything at this time (before Oct 15,2024 extended tax deadline) with respect to 2023 taxes, such as filing amended taxes for 2023 or form 5329 for 10% penalty of about $5 due to early disbursement from my wife's accounts as she is below 59 1/2?

Q3. Any guidance on leveraging my TurboTax tools to help me sort through this and file appropriate forms.

Q 4. Anything else that I may be missing?

fanfare

Employee

The proper way to file Form 5329 is attached to Form 1040-X.
Form 5329 can be mailed by itself only when you are otherwise not required to file a tax return.

If you are paying a penalty then amounts are changing and you have to adjust your tax.
The new or changed forms would be
Form 5329
Schedule 2 Line 8
The penalty goes on 1040-X Line 10.
Do not include your old 1040 nor your revised 1040 because the Form 1040-X reflects any changes there and becomes your new tax return.

Done this way, you sign 1040-X, not 5329.

@msv1

M

msv1Author

Thanks very much for a detailed reply. However, I don't understand why paying penalty would affect my taxes. Excess Roth IRA Penalty is considered excise tax. It does not require adjustment to my taxes any way. So, my question is that is there any violation of IRS regulations in just sending completed 5329s with penalty payments without amending the tax return?

Further, what about 2023 tax return. Do I need to amend my 1040 for 2023 before Oct 15, 2024 or file everything next year with my 2024 taxes after I receive 1099Rs for myself and my wife?

Thanks again for your time and patience!

KarenL

Employee

You are correct that you do not need to file a Form 1040-X unless you have other changes to your tax return. Each tax year uses a different form 5329, so make sure you use the correct one (2022, in your case).

Wait until you receive the 1099-R forms before you amend your 2023 tax returns. The 1099-R forms you receive will (hopefully) be coded properly and likely won't require you to amend. Since it will be a non-taxable return of your excess contribution plus your growth, only the growth will be taxable.

Another option, but it's too late if you already removed the excess, would have been to reallocate the excess to the 2024 tax year. In the future, it might be worth discussing this option with your broker. In that case, only the growth would have needed to be removed.

[Edited 5/10/2024:8:57 AM PST]

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