Excess 2022 Roth Contribution

CatScratch

Hi everyone,

I need some advice regarding a Roth IRA issue. In 2022, I contributed $6,000 to my Roth IRA, but I didn't have any earned income that year, and I didn't file a tax return myself.

I'm aware that contributions without earned income are not allowed, so I have already withdrawn the $6,000 excess contribution from my account after I filed my 2023 taxes. However, I'm unsure about the process for declaring this withdrawal and what further steps I need to take.

Here are my main concerns:

1. How should I go about declaring the withdrawal and any earnings?
2. Are there any specific IRS forms or procedures I need to follow to report this correctly?

Thanks in advance for your help!

rachels

Hi CatScratch,

IRS Publication 590A states, "In general, if the excess contributions for a year aren’t withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year…The additional tax is figured on Form 5329."

Essentially, if you did not withdraw the excess 2022 contributions by the due date of your 2022 return, then you would need to file a 2022 tax return to show that you had an excess contribution and pay the related 6% tax on the excess contribution. Our software will fill out Form 5329 for you, based on the information entered in the Deductions/Credits > Common Deductions/Credits > IRA Contributions section of your account.

If you already filed your 2023 return without indicating anything about the excess, you will likely need to amend your 2023 tax return, as well. In the Deductions/Credits > Common Deductions/Credits > IRA Contributions section of your account for 2023, you would answer YES to the question asking, "Did you have excess Roth IRA contributions in 2022 reported on Form 5329, Line 24 and owe additional tax on Form 5329, Line 25?" The following screens will ask about the excess. If you did not withdraw the excess by the end of 2023, you may be charged the 6% tax again, depending on your situation.

If you qualified to make an IRA contribution in 2023, but did not contribute the full allowed amount for the 2023 tax year, then the excess contribution from 2022 will typically be applied to the 2023 contribution limit and will not be charged a penalty. If your combined 2022 and 2023 contribution amounts exceed your 2023 contribution limit, then you will be charged the 6% tax on amounts over the limit on your 2023 tax return, as well.

Assuming you withdrew the funds in the 2024 calendar year, next year you should get a 1099-R reporting the withdrawal of the funds. You will want to report that 1099-R on your 2024 tax return.