I have been filing as married filing separate since I was married in 2022. Prior to the marriage I had been contributing to a Roth IRA and continued until now, as I have learned it is not efficient without the backdoor conversion as this filing status makes me ineligible. I am looking for confirmation that I am filing my taxes correctly for 2024. 2022 I paid the 6% excise tax on $4500 in contributions on the Roth IRA. I was ok with this fee at the time not knowing the full extent of the tax code.2023 I paid the 6% excise tax on the $5625 contributions and $4500 (2022) contributions ($10,125) as prompted by Turbo Tax. As I am filing my taxes for 2024 I have decided to break this pattern and begin investing without penalty in a different retirement account. The steps I have taken or are planning on taking are:I have recharacterized all 2024 Roth contributions and one January 2025 Roth contribution as a traditional IRA ($3550).This should eliminate the penalty on my 2024 contributions.I am withdrawing my excess contributions from 2022 and 2023 ($10,125 exactly). Speaking with a turbo tax professional today they believe that as long as this is done before filing my taxes by the April 15 deadline I will no longer need to report the excess contributions on my 2024 return. Is this correct? Or do I still need to pay the 6% on the $10,125 of excess contributions that were in my account as of 12/31/24 on my 2024 return?Unfortunately my IRA custodian has no experience with this and I want to make sure I correct this moving forward. Thank you for any advice in advance.

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Question

Roth IRA excess contributions for multiple years

Forum|Forum|1 year ago
February 27, 2025
2 replies
0 views

I have been filing as married filing separate since I was married in 2022. Prior to the marriage I had been contributing to a Roth IRA and continued until now, as I have learned it is not efficient without the backdoor conversion as this filing status makes me ineligible. I am looking for confirmation that I am filing my taxes correctly for 2024.

2022 I paid the 6% excise tax on $4500 in contributions on the Roth IRA. I was ok with this fee at the time not knowing the full extent of the tax code.
2023 I paid the 6% excise tax on the $5625 contributions and $4500 (2022) contributions ($10,125) as prompted by Turbo Tax.

As I am filing my taxes for 2024 I have decided to break this pattern and begin investing without penalty in a different retirement account. The steps I have taken or are planning on taking are:

I have recharacterized all 2024 Roth contributions and one January 2025 Roth contribution as a traditional IRA ($3550).
- This should eliminate the penalty on my 2024 contributions.
I am withdrawing my excess contributions from 2022 and 2023 ($10,125 exactly). Speaking with a turbo tax professional today they believe that as long as this is done before filing my taxes by the April 15 deadline I will no longer need to report the excess contributions on my 2024 return.
- Is this correct? Or do I still need to pay the 6% on the $10,125 of excess contributions that were in my account as of 12/31/24 on my 2024 return?
Unfortunately my IRA custodian has no experience with this and I want to make sure I correct this moving forward. Thank you for any advice in advance.

TurboTax PLUS Online

fanfare

Employee

I am withdrawing my excess contributions from 2022 and 2023 ($10,125 exactly). "

This resolves your 2022,2023 excess in 2025. You still have a penalty for those years on 2024 Form 5329.

Report the resolution on your 2025 tax return.

"I have recharacterized all 2024 "

Having recharacterized before Tax Day, there is no longer a 2024 Roth contribution

Instead report a 2024 Traditional IRA contribution.

Having recharacterized Jan 2025 contribution. report this on your 2025 tax return.

@bmo742

fanfare

Employee

See my corrected reply above since you are taking all action in 2025.

@bmo742

Opus 17

Employee

Stop.

Why do you think a backdoor Roth IRA is not allowed? When filing married filing separately, you can't deduct traditional IRA contributions but you can still make contributions up to the annual limit, and making non-deductible IRA contributions is the whole point of a backdoor Roth. (A conversion is not the same as a contribution.)

2022 and 2023, you made a mistake, because you could have recharacterized the contributions as contributions to a traditional IRA. But it is too late now.

"I have recharacterized all 2024 Roth contributions and one January 2025 Roth contribution as a traditional IRA ($3550). This should eliminate the penalty on my 2024 contributions."

Correct.

"I am withdrawing my excess contributions from 2022 and 2023 ($10,125 exactly). Speaking with a turbo tax professional today they believe that as long as this is done before filing my taxes by the April 15 deadline I will no longer need to report the excess contributions on my 2024 return. "

Wrong. The deadline to remove excess contributions using the special procedure to remove excess was October 15, 2023 and October 15, 2024. Since you missed those deadlines, and the excess is still in your account, you must pay a penalty, 6% on the remaining carry-forward from 2022 and 2023. Your 2024 return should include a form 8606 that documents the 2024 contribution of nondeductible money to a traditional IRA, and a form 5329 calculating the 6% penalty. Save a copy of form 8606 for as long as you live, or as long as you have any money in a traditional IRA, plus three years. (This is an exception to the usual rule that tax forms can be discarded after 3 or 6 years.) When you withdraw from the traditional IRA in the future, you will need the form 8606 to show that since part of the IRA is after-tax (non-deductible) money, part of the withdrawal should be tax-free.

In short, the $10,215 withdrawal you want to make will be reported in 2025, since it happens in 2025. It is not eligible for the special procedure to be treated as if it happened in 2024.

To avoid a penalty in 2025, you must withdraw $10,125 before December 31, 2025. You do not have to remove the attributable earnings. You can leave the earnings in the account to grow (the 6% penalty is supposed to offset the earnings). Because the $10,125 is your original contributions, and because withdrawal of contributions from a Roth IRA is never taxed, this withdrawal won't be taxed at all (no tax, no penalty) as long as you have not previously made other withdrawals. If your account is gaining in value, there is no reason not to leave the money alone until December so it can earn more. It won't change your tax or penalties to do it in a hurry.

If you have no other money in traditional (pre-tax) IRAs, you can convert the money in your traditional IRA to a Roth tax-free, except for earnings. If you have other pre-tax money in traditional IRA accounts, then the conversion will be partly taxable, but you can still think about doing it.

bmo742Author

Thank you for your response as it does help clarify things.

It is not that I do not think the backdoor Roth is not allowed, more that I am intimidated by the process and do not want to make any more tax errors moving forward. If you have any advice on how to do this with the traditional IRA funds at some point this calendar year I would appreciate it as my IRA custodian is not familiar with it, which may be a larger problem.

I will plan on leaving the excess 10,125 that I failed to withdraw in time in my account until December to help offset the additional 6% penalty that I will pay for my 2024 excess contributions still in the account.

Thanks again

Opus 17

Employee

@bmo742 wrote:

Thank you for your response as it does help clarify things.

It is not that I do not think the backdoor Roth is not allowed, more that I am intimidated by the process and do not want to make any more tax errors moving forward. If you have any advice on how to do this with the traditional IRA funds at some point this calendar year I would appreciate it as my IRA custodian is not familiar with it, which may be a larger problem.

A backdoor Roth is relatively simple as long as you have no pre-tax funds (tax deductible) in any traditional IRA. All IRAs that you own are added together for this purpose, but you don't include pre-tax workplace plans like 401(k), 403(B) or other qualified workplace plans. If you have some tax-deductible money in traditional IRAs, it's trickier.

Do you have any pre-tax funds in traditional IRAs? (After the characterizations, you will have $3350 of after-tax funds in a traditional IRA, but what about pre-tax or deductible money?)