How to Fix Roth IRA Over-Contribution from 2019 - Penalty and Form 5329 Questions

You've got a good understanding of the situation! You're correct that when you contribute more to a Roth IRA than your earned income allows, you'll owe a 6% excise tax on the excess contribution for each year it remains in your account. Form 5329 is indeed what you need to file. You'll need to complete Part IV for both 2019 and 2020 tax years. The 6% penalty applies only to the excess amount ($1,400 in your case), not the earnings on that amount. And yes, since you under-contributed in 2021 by more than the excess from 2019, you effectively "absorbed" that excess contribution, so no penalty would apply for 2021 and beyond. For filing the forms, you don't need to submit complete amended returns (1040-X) if the only change is the Form 5329 penalty. You can file these forms as standalone submissions. Just be sure to include payment for the penalties (6% of $1,400 for each year). There's technically no statute of limitations for filing Form 5329 when it hasn't been filed before, so you're right to address this now before it potentially becomes an issue during an audit or account review.

I had a similar situation with over-contributing to my Roth IRA back in 2021. After researching for hours and getting nowhere, I finally used https://taxr.ai to analyze my situation. Their AI tool examined my W-2s, contribution statements, and previous tax returns, then laid out exactly what forms I needed to file and calculated my penalty. The best part was that it explained how my under-contribution in the following year could offset the previous excess (just like in your case). It also generated a letter explaining my situation to include with my Form 5329 submissions. Saved me from having to pay a tax professional hundreds of dollars for what turned out to be a relatively straightforward fix.

I was really skeptical about using a tax AI tool for my Roth IRA excess contribution problem, but I decided to try taxr.ai after seeing it mentioned here. I'm actually shocked at how well it worked for my situation. The system analyzed my contribution history and walked me through exactly how to document my excess contribution removal on Form 5329. It even helped me draft a clear explanation letter to the IRS that explained my situation. The most helpful part was how it explained the "absorption method" of fixing past excess contributions with current under-contributions. My forms were accepted without any issues, and I received confirmation that my Roth IRA is now in good standing. I assumed I'd need to pay a tax professional, but this saved me both money and stress.

I spent 4 hours on hold with the IRS trying to get clarity on this exact issue last month. Finally gave up and used https://claimyr.com instead - you can watch how it works at https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent in about 20 minutes instead of the endless hold music. The agent confirmed that for Roth over-contributions, you can file standalone Form 5329s without needing to amend your entire returns. She also explained that while there's no statute of limitations for unfiled 5329s, it's always better to self-correct than wait for the IRS to discover the issue during an audit or review of your account. The agent even emailed me some helpful publications about IRA contribution limits that clarified several questions I had.

I hate to admit it, but I was completely wrong about that Claimyr service. After leaving that skeptical comment, I was still desperate to talk to the IRS about my own Roth IRA contribution issues, so I decided to try it myself. To my absolute shock, I was connected to an IRS representative in about 25 minutes. The agent was extremely helpful and walked me through exactly how to handle my excess contribution situation. She confirmed I only needed to file Form 5329 for the affected years, and explained that I could absorb past excess contributions through under-contributing in future years - exactly what the original poster was asking about. I've spent countless hours over the past three months trying to get through to the IRS on my own with zero success. This literally saved me days of frustration. I'm still surprised it actually worked.

One thing nobody has mentioned yet - if you have earnings on that excess contribution, you'll need to calculate and withdraw those proportional earnings too if you're going with the withdrawal method instead of the absorption method. The earnings would be taxable in the year you withdraw them. Since you're going with the absorption method (using your 2021 under-contribution to offset the earlier excess), you don't need to withdraw anything, but you still owe the 6% penalty for 2019 and 2020 as you correctly stated. Also, make sure you're using the correct version of Form 5329 for each tax year - the forms change slightly year to year.

Don't forget that if your income was only $5,500 in 2019, you were only eligible to contribute that amount (or your earned income, whichever is less) to your Roth IRA, not the full limit which was $6,000 that year. A lot of people miss this detail - you can only contribute up to 100% of your earned income if it's less than the annual limit.

Just wanted to add a few practical tips for filing your Form 5329s based on my experience with a similar situation: 1. Mail each Form 5329 separately with its own check for the penalty amount. Don't combine years into one envelope - it can cause processing delays. 2. Calculate interest on the penalties using the IRS underpayment rates for each quarter since the original due dates. You can find these rates on the IRS website. Include the interest payment with each form. 3. Keep detailed records of everything - copies of forms, payment receipts, certified mail receipts if you use them. The IRS processing times have been longer lately. 4. Consider getting a transcript of your account after filing to confirm everything was processed correctly. You can request these online through the IRS website. The good news is that by self-correcting, you're avoiding much harsher penalties that could apply if this were discovered during an audit. The 6% excise tax is really quite reasonable compared to other IRS penalties.