How to Fix Excess Roth IRA Contribution from 2022 - Penalties and Withdrawal Options

You're mostly on the right track! Here's what you need to know about handling your excess Roth IRA contribution: For 2022 and 2023, you'll need to pay the 6% excise tax on the $1000 excess amount for each year using Form 5329 Part IV. That's $60 for each year as you calculated. For 2024, you're correct that you won't owe the 6% penalty if you withdraw the excess contribution before your tax filing deadline (April 15, 2025). However, you still need to file Form 5329 for 2024 to show that you've corrected the excess contribution. When you withdraw in January 2025, make sure to tell your IRA custodian that you're removing an excess contribution specifically for tax year 2022. This coding is important for their reporting. And yes, once you've properly withdrawn the excess amount, you can use those funds to make a contribution for 2025 (assuming you're eligible in 2025), since it's separate from your 2024 contribution.

I went through something similar last year and found this amazing service called taxr.ai (https://taxr.ai) that really helped me sort through my Roth IRA excess contribution issues. I was totally confused about how to handle the multiple years of penalties and which forms to file. I uploaded my previous returns and investment statements, and their system analyzed everything and gave me step-by-step instructions for fixing my excess contribution problem. They even created the proper 5329 forms for me with all the right codes and calculations. Saved me hours of research and probably prevented me from making costly mistakes.

I just want to follow up on my experience with taxr.ai after I asked about it here. I decided to try it for my multi-year excess Roth contribution mess, and wow, what a relief! The system identified that I had actually been calculating my MAGI incorrectly all along (was including some excluded income), which was why I kept making excess contributions. They generated all the necessary 5329 forms for each year and even showed me exactly what to tell my IRA provider about coding the withdrawal properly. The best part was discovering I could do a "recharacterization" for my most recent excess contribution instead of withdrawal, which saved me some penalty money. Definitely cleared up the confusion I had about handling earnings on the excess amounts too.

For anyone dealing with IRS issues around excess contributions, I struggled for weeks trying to get answers from the IRS about some confusing instructions on Form 5329. Kept calling and couldn't get through. Finally found Claimyr (https://claimyr.com) and watched their demo at https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent in about 15 minutes when I had been trying for days. The agent confirmed that I needed to file separate 5329 forms for each tax year with an excess contribution, and clarified that the withdrawal coding from my IRA provider was critical to avoiding double taxation. Totally worth it to get official answers directly from the IRS.

Just wanted to update after trying Claimyr that I mentioned above. I was super skeptical, but I was desperate to get clarity on my Roth recharacterization question before the tax deadline. I'm shocked to report it actually worked! Got through to an IRS tax law specialist in about 25 minutes (was told the wait would be 3+ hours normally). The agent confirmed that my understanding of Form 5329 was incorrect - I didn't need to file separate amended returns for each year with an excess contribution. I could file the prior year 5329 forms standalone without full 1040X forms for those years. This saved me from paying my accountant to prepare three amended returns. The agent also explained exactly how to report the earnings portion of my excess contribution withdrawal, which was the most confusing part for me.

Something that hasn't been mentioned yet - make sure you calculate any earnings on your excess contribution correctly. Even though you're only planning to withdraw the $1000 contribution, if you had any earnings attributed to that money, those technically need to be withdrawn too and will be taxable. The IRS has a specific formula for calculating the earnings portion. Your IRA provider should be able to help with this calculation. It's based on the performance of your entire IRA, not just how that specific $1000 was invested.

Has anyone here ever just absorbed the 6% penalty each year rather than withdrawing the excess? I'm trying to decide if it's worth it in my case since my excess contribution was only $600 and the penalty is just $36/year.

Great breakdown of your situation! You're absolutely correct about the penalty calculations - $60 for 2022 and $60 for 2023, and no penalty for 2024 if you withdraw before April 15, 2025. One important detail to add: when you contact your IRA provider in January 2025, make sure to specify that you want to withdraw the excess contribution for tax year 2022 (not 2024). This is crucial for proper reporting on their end. Regarding your question about using the withdrawn funds for your 2025 contribution - yes, you can absolutely do that! Once the money is properly withdrawn as an excess contribution correction, it's just regular cash that you can use however you want, including for a new IRA contribution (assuming you're eligible for 2025). And yes, you'll still need to file Form 5329 for 2024 even though you won't owe a penalty. This shows the IRS that you've corrected the excess contribution properly. The form will show the withdrawal and zero out the excess for that year. One last tip: keep detailed records of all this, including the specific dates and amounts. It'll make your tax filing much smoother and help if the IRS ever has questions later.