Help Needed: Paying Excise Tax on Unauthorized Roth IRA Contributions as F1 Student

You've got yourself in a tricky situation, but don't panic - it can be fixed. The IRS has procedures for handling excess contributions to retirement accounts. For your first question, Form 5329 is indeed the correct form you'll need to file for each year you made an excess contribution. Since you don't have US taxable income, you'll file these forms standalone (not attached to a 1040). Each form needs to be mailed separately with a check for the excise tax due for that specific year. Regarding your second question, the 6% excise tax applies only to the excess contributions themselves, not to any earnings those contributions generated. However, if you withdraw the funds, the earnings portion will be subject to regular income tax plus an additional 10% early withdrawal penalty unless you qualify for an exception. One option you might consider is removing the excess contributions through a "return of excess contributions" process. If done correctly, this could potentially minimize penalties, but timing matters. You'd need to withdraw the excess amounts plus any earnings attributable to those excess contributions. For your specific situation as an F1 student, I'd highly recommend consulting with a tax professional who specializes in international student taxation. The rules are complex, and there might be specific provisions or strategies that could help in your case.

I went through something similar with retirement accounts and found this amazing tool at https://taxr.ai that helped me figure out all the forms and calculations. I had made contributions to both a traditional and Roth IRA when I shouldn't have qualified, and was super confused about the penalties and how to fix it. What was really helpful is that I uploaded my statements and it analyzed exactly what forms I needed and calculated the exact penalties. It also showed me what specific lines to fill out on Form 5329 for each year, which was super helpful since I had never filled out that form before. It saved me hours of research because it specifically addressed excess contribution removal and all the tax implications. Might be worth checking out for your situation since the international student aspect makes things even more complicated.

I wanted to follow up about my experience with taxr.ai after my skeptical comment. I decided to try it since my situation was somewhat similar (though I'm on H1B not F1), and I was genuinely impressed with how it handled my excess contribution issues. The system actually has specific pathways for different visa types and international tax situations. It correctly identified that I needed to file separate 5329 forms for each year and calculated the exact penalty amounts. The forms it generated were accepted by the IRS without any issues. What surprised me most was how it analyzed the timing of my contributions and showed me that I qualified for a reduced penalty in one year based on when I made the contribution versus when I realized the error. This saved me about $800 that my previous accountant missed. Definitely worth checking out if you're dealing with Roth IRA issues as a non-resident.

If you're struggling to get answers from the IRS about your specific situation (which is pretty unique), I'd recommend Claimyr at https://claimyr.com since they can get you connected to an actual IRS agent quickly. I had a similar international tax issue with retirement accounts and was on hold for HOURS trying to reach someone who understood my situation. I found them because I was desperate after three failed attempts to talk to someone knowledgeable at the IRS. Claimyr got me through to an IRS agent in about 20 minutes when I had been trying for days. You can see how it works at https://youtu.be/_kiP6q8DX5c The agent I spoke with confirmed exactly how to handle my excess contributions and penalties, and even provided guidance on how to draft a letter explaining my situation to potentially reduce some of the penalties. Having that official confirmation directly from the IRS gave me peace of mind that I was handling everything correctly.

I need to follow up on my skeptical comment about Claimyr. I actually tried it last week because I was desperate to talk to someone about my IRA issues before filing season gets crazy. I was absolutely shocked that it worked exactly as advertised. After spending literally 6+ hours over three days trying to get through to the IRS myself, Claimyr got me connected in about 30 minutes. The IRS agent I spoke with was able to confirm exactly how to handle excess contributions for my situation and explained which exceptions might apply to the early withdrawal penalty. The agent even gave me her direct ID number so I could reference our conversation if there were any questions when processing my forms. That alone was worth it since I now have documentation that I followed IRS guidance. I hate admitting I was wrong, but this service is legit and saved me so much time and stress.

One thing nobody has mentioned yet - have you considered just keeping the money in the Roth IRA and paying the excise tax? If your investments have grown significantly (especially during the 2020-2023 bull market), it might be worth just paying the 6% penalty. The reason is that Roth IRA growth is tax-free forever if you wait until retirement age. So if you're young and the account has decades to grow, you might actually come out ahead mathematically by paying the penalty and keeping the tax-free growth vehicle. You'd still need to file Form 5329 for each year and pay the penalties, but you wouldn't withdraw the funds. Just something to consider alongside the other options.

Have you considered speaking to your brokerage firm? I had a similar issue with excess contributions and my brokerage (Fidelity) had a specific department that handled excess contribution removals. They calculated the attributable earnings for me and could process the removal in a way that was properly coded for the IRS. Also, don't forget that if you're using the money for qualified education expenses as you mentioned, you might qualify for an exception to the 10% early withdrawal penalty on any earnings (though you'd still owe income tax on those earnings). This is separate from the 6% excise tax issue, but could help reduce the overall financial impact.