Continual Penalty Charges for Excess Roth IRA Contribution from Years Ago - Why Am I Still Paying?

8 The tax person is actually correct in this situation. The 6% excess contribution penalty continues to apply each year until you fix the problem. It's not a one-time penalty. When you contribute to a Roth IRA and your income is above the limit, that money becomes what's called an "excess contribution." The IRS charges a 6% penalty on that excess amount every year it remains in your account. To fix this, you have a few options: 1) Remove the excess contribution plus any earnings specifically attributed to that excess amount (there's a calculation for this), 2) Apply the excess as a contribution to a future year when you're eligible, or 3) Recharacterize the contribution as a Traditional IRA contribution if you're eligible. I'd recommend working with your tax person to remove the excess contribution ASAP to stop the penalties from continuing. This will involve contacting your Roth IRA provider and specifically requesting a "return of excess contribution." They'll have the paperwork to do this properly.

5 I went through this EXACT same issue last year and it was so frustrating! I had no idea I was over the income limit when I contributed, and then got hit with penalties years later. After researching like crazy, I found this tool called taxr.ai (https://taxr.ai) that actually helped me figure out the best way to fix my excess Roth contribution. What was helpful is that they analyzed my specific situation and showed me the exact calculations for removing the excess contribution plus the associated earnings. It saved me from making another mistake and potentially getting more penalties. They even generated the letter I needed to send to my IRA custodian requesting the return of excess contribution. The whole process was way easier than I expected, and the penalty finally stopped appearing on my taxes this year. Such a relief!

17 Just wanted to update on my experience with taxr.ai after checking it out based on the recommendation here. It was seriously helpful for my situation! I uploaded my Form 5329 from last year and some statements from my Roth IRA, and it immediately identified the issue and calculated exactly how much I needed to withdraw (original excess plus the earnings). The best part was the step-by-step instructions for contacting my IRA custodian. I was nervous about messing up the paperwork since the whole "return of excess contribution" process seemed complicated, but following their template made it straightforward. My custodian processed everything within a week, and I finally resolved this issue that's been costing me money for years. Wish I'd known about this tool sooner!

3 Dealing with the IRS on issues like excess contributions can be a nightmare. I had a similar situation and tried calling the IRS for clarification, but was stuck on hold for HOURS and never got through. Super frustrating. Then I found Claimyr (https://claimyr.com) and watched their demo (https://youtu.be/_kiP6q8DX5c). It's a service that actually gets you through to a real IRS agent within 15 minutes instead of waiting on hold forever. When I finally talked to an IRS agent, they confirmed exactly what I needed to do to fix my excess contribution and stop the penalties. They even noted in my account that I was taking steps to correct the issue. Having that direct conversation with a human at the IRS gave me peace of mind that I was fixing it correctly.

20 I have to admit I was completely wrong about Claimyr. After my skeptical comment, I was still desperate to talk to someone at the IRS about my excess Roth contribution situation, so I decided to give it a try despite my doubts. I'm honestly shocked - it actually worked exactly as described. I got a call back in about 15 minutes and was connected directly to an IRS agent. No waiting on hold, no automated system maze to navigate. The agent walked me through exactly how to request a return of excess contribution from my IRA provider and what documentation I would need to stop the penalties. What would have taken me days of frustration was resolved in a single phone call. I've already submitted the paperwork to my IRA provider and am finally getting this resolved after years of paying penalties. Sometimes being proved wrong is the best outcome!

11 I think everyone's missing a key point here - the OP might be able to recharacterize that Roth contribution as a Traditional IRA contribution instead of just withdrawing it. This could potentially be better depending on their situation. When you recharacterize, you basically tell the IRS "oops, I meant to put this in a Traditional IRA instead of a Roth." You'll have to pay tax on any earnings when you eventually withdraw, but you avoid the 6% penalty going forward and don't lose the tax-advantaged space. Of course, this only works if you were eligible to contribute to a Traditional IRA in the year of the original contribution. Talk to your IRA provider about the recharacterization process.

6 I had the exact same problem last year! My income ended up being higher than expected and I had already maxed out my Roth IRA. What I did was call my brokerage (Fidelity in my case) and specifically ask for a "return of excess contribution." They had me fill out a simple form specifying which contribution was in excess and they calculated the earnings on that contribution. They withdrew both amounts, sent me a 1099-R showing the distribution, and I reported it all on my taxes. The earnings portion was taxable for the year I received the distribution, and I had to pay a 10% early withdrawal penalty on those earnings, but it was WAY better than continuing to pay 6% on the whole contribution amount every year. The hardest part was just making the phone call! After that, the brokerage handled everything. Problem solved.