Please help me with my excess roth IRA contribution

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Ted
Ted Member Posts: 9 Level 2
edited March 19 in Filing my taxes

Hello. I hope someone could guide me in the right direction with this matter. I feel so lost I hope someone who's knowledgeable and organized can help me bc trying to figure it out on my own is giving me serious anxiety :(

Roth contribution in 2022: $6000, Roth contribution in 2023 = $6500

I realized today that both years I was not allowed to contribute as my MAGI was over the max limit. I called vanguard to have them remove both contributions for 2022 and 2023 (including earnings).

While filling out my 2023 freetaxusa return, I see that in the IRA contribution section there is a prompt that ask me if i contributed to roth in 2023 and if i also made any withdrawals. I input the full $6500 was withdrawn and I believe this means IRS will be made aware that the funds were removed before the deadline and no penalty (correct me if i'm wrong).

What has me lost is that there's no section for me to indicate that I have withdrawn my 2022 $6000 contribution. My question is how do I report that the $6000 contribution from 2022 was removed so that I don't keep getting a penalty in the following year?

In my 2023 return there's also a section "Enter the excess contributions from your 2022 Form 5329, Line 24:" The system autofilled $6000 for this section and a 6% penalty was added to my return for $360. The odd thing is that the 6% penalty was never added on my 2022 return even tho the excess was indicated on the 5329. Why would that be? It's my understanding that I still owe 6% penalty for 2022 as well. If that's the case how do I pay this penalty? Do i have to amend my 2022 return?

Also how do i report my earnings I made on my 2023 contribution that was withdrawn as well?

Answers

  • RyanZ
    RyanZ FreeTaxUSA Agent Posts: 70
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    Hello,

    The excess contribution for 2022 is penalized for 2022 (because it wasn't corrected by the due date of the return) and for 2023 because it wasn't corrected by the end of 2023. The way that it will report the withdrawal is when you receive a form 1099-R reporting this.

    Without access to your FreeTaxUSA account I am unable to comment regarding a form 5329 being included on your 2022 tax return. You will need to contact Support from within your FreeTaxUSA account.

    You have until the due date of the 2023 tax return to correct the excess contribution for 2023 without incurring the excess contribution penalty. Presuming that you remove the excess 2023 contribution during 2024, you will receive a form 1099-R next year (in 2025) that reports the distribution from the 2023. The earnings will be included in the 1099-R and can not be added to your original 2023 tax return, so you will need to wait until you receive the 1099-R and amend the 2023 tax return.