Excess IRA Contribution
Made a big mistake and contributed to the max limit for Roth IRA for 2023, 2024, and 2025. Found out I wasn’t supposed to after speaking with a friend.
I didn’t know that you need to earn income to contribute. I know…it was dumb and I should’ve done my research before listening to someone else’s advice. :\
I am not working and am a full time student. I don’t have any income from 2023-2025 except for savings account interest income, which isn’t much.
I would like advice on what to do next? There was no tax return filed in 2023 because I didn’t work. So I probably can’t do a 2023 tax return amendment. Will I have to file a late 2023 return for the excess contribution made in 2023? Then I would have a late payment or late file penalty? Or can I just report it on my 2024 tax return?
From my research it seems I should try to fill out a return of excess contribution form with Fidelity for what I contributed for 2025. Would I still report the contribution if I file that form?
I know there’s some kind of 6% penalty for excess contribution for 2023 and 10% penalty on gains. I also read that if you withdraw excess contribution before 4/2025 tax filing date that there won’t be a 6% penalty for 2024 contributions? I know there is state and federal taxes. Is there a penalty for both?
Should I withdraw everything right away? I’m so lost and panicking in the middle of the night and don’t know what to do. I’m in California if that helps.
Best Answer
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If you did not have any earned income in 2023, 2024 or up to this point in 2025 (and if you don't anticipate having any earned income in 2025), you will want to withdraw all excess contributions and earnings.
Post-2022, the earnings will likely not be subject to the 10% early distribution penalty. If you withdraw your 2024 earnings before the April 15th due date (or extended due date, if applicable), you won't be subject to the 6% excise tax on those contributions. This treatment only applies if any earnings on the withdrawn contributions are also withdrawn. You will be subject to the 6% excise tax on your 2023 excess contributions.
You will need to file a 2023 tax return to report the excess contributions. This will generate Form 5329 as part of your return.
To then report your 2023 excess contributions on your 2024 tax return, please go to Deductions/Credits > Common Deductions/Credits > IRA Contributions. The IRA Contributions screen will ask, “Did you have excess Roth IRA contributions in 2023 reported on Form 5329, Line 24 and owe additional tax on Form 5329, Line 25?” If you answer YES to that question, you will be asked for your 2023 excess Roth information on the following screens.
You will indicate your contributions when filing each of your returns and then report if the excess contributions have been or will be withdrawn by the filing deadline.
Your withdrawal of the excess contributions will be reported to you on a 2025 Form 1099-R (received next year in 2026). Whether you report the income on your 2025 return next year or amend prior year returns will depend on the code contained in Box 7 of the 1099-R. (A code including the number 8 will indicate that your 1099-R should be reported for the year in which the form was issued. A code of P indicates the 1099-R income is taxable in the year that the contribution was originally made.) However, you won't know what code will be indicated until your 1099-R is issued next year.
California does not have taxes similar to the 6% federal excise tax on excess contributions.
Please do reach out to our customer support team from within your account if any questions arise as you enter your tax information.
