Excess Contribtions 2020-2023
Unknowingly contributed directly to a Roth IRA , not knowing I was above the MAGI to directly contribute to a Roth IRA.
Total excess contributions $24000
2020 done in 01/2021 $6000
2021 done in 01/2021 $6000
2022 $6000
2023 $6000
1.Since this was not known timely and we’re beyond the extension for those tax years, from researching and correct me if I am wrong, I am not allowed to do a recharacterization for the excess contributions for those years. So instead I will have to pay the 6% excise penalty on the amount for the years it has been in the account. I went ahead and pulled out the 24K from my Roth account. I was told by an accountant that since I am going to pay the 6% excise penalty on the excess contributions I do not need to withdraw earnings if any. Is this accurate?
2.Also since the amount was pulled out in 2025 do I need to amend my 2024 taxes or just wait till next year when its time to do 2025 taxes and I receive the 1099R for the withdrawal of the contributions?
3. If I go ahead an need to do an amendment to my 2024 taxes how do I calculate the 6% excise penalty? unsure as to the 6% excise penalty cannot be greater than the 6% of total IRA value? Is this the value as of 12/31/2024? my total Roth IRA value as of 12/31/2024 was $32590 (6%*32590=1995.4)
2020 contributions stayed in account from 01/2021-4/2025 4 years ($6000*.24=$1440)
2021 contributions stayed in account from 01/2021-04/2025 4 years ($6000*.24=$1440)
2022 contributions stayed in account from 01/2022-04/2025 3 years ($6000*.18=$1080)
2023 contributions stayed in account from 01/2023-04/2025 2 years ($6000*.12= $720)
Total $4680 or 6% of Total Value $1995.40?
Would greatly appreciate your input, thank you!
Permalink Submitted by Alan - IRA critic on Fri, 2025-04-18 15:20
You do not have to withdraw earnings, accountant is correct.
You will need to file a 5329 with Form 1040X to pay the excise taxes due for each year 2020-2024. The sooner you pay these taxes the lower the interest will be if the IRS bills for late interest. Start with the 2020 5329 because the excess contributions are cumulative and each 5329 starts with the balance from the prior year.
The excise tax for 2020 will be 6% of 6000; for 2021 6% of 12000; 2022 6% of 18000; 2023 6% of 24000; 2024 6% of 24000. Total excise tax bill 5,040. But for each of those years the 6% will not exceed the value of all your Roth IRAs should the year end value at the end of such year be lower than the amount the excise tax is applied to. Since the value at the end of 2024 was more than 24000, the 6% applies to 24000. The method you used frontloads the tax and would have produced the same total except that the 2020 excess was in the Roth for 5 years, not 4. The correct method will also produce lower interest charges because the excise taxes were due later than the method you applied.
The distribution taken this year will be reported on a 2025 Form 8606, and should be non taxable since it comes from your regular contribution basis. You will also need a 2025 5329 just to show that the excess has been eliminated by your distribution. No excise tax will be due for 2025.