How to file Form 5329 for prior year Roth IRA over-contribution?

Thanks for your response. So if I understand correctly, I can just file the Form 5329 by itself without having to go through the whole amended return process? That would be much easier. Do I need to include any other documentation with the Form 5329 besides the payment and explanation?

You can absolutely file Form 5329 by itself for this situation. You don't need to go through the full amended return process when you're only reporting an excess contribution penalty. You should include a check or money order for the penalty amount ($13.80 for a $230 excess), and a brief cover letter explaining that this is for a 2021 excess Roth IRA contribution that you're now addressing. No other documentation is typically required, but keep your IRA statements showing the contributions for your records in case of questions later.

How does the tool actually work? Does it just provide guidance or does it help you fill out the forms too? My situation is kinda complicated because I also rolled over some money that year and I'm not sure if that affects my calculations.

Sounds interesting but I'm skeptical about these tax tools. Did you actually have to upload your past returns or financial info to it? I'm always wary about sharing my tax documents online.

It actually analyzes your specific situation by asking questions about your contributions and gives you personalized instructions. You don't have to complete a whole return - it just focuses on the specific issue you're trying to solve. I found it super helpful for understanding exactly which parts of Form 5329 needed to be completed. Regarding privacy concerns, you only need to input the specific information related to your contributions - not your entire tax return. I was hesitant at first too, but they're quite clear about their security measures and don't ask for any more information than what's needed to address your specific tax issue.

Wait, how does this actually work? I thought it was impossible to get through to the IRS these days. Do they have some special access number or something?

Yeah right. Sounds like a scam to me. There's no way someone can magically get through the IRS phone lines when millions of people can't. I've been trying for weeks and always get the "due to high call volume" message.

It uses automated technology to keep calling and navigating the IRS phone tree until it gets through to an agent. It's similar to how those automatic reservation services work for hard-to-get restaurant reservations. There's no special access number - they're just persistent with the regular IRS lines that everyone else uses. They basically save you from having to sit there redialing for hours. When they get an agent, they connect the call to your phone so you can speak directly with the IRS person. So you're talking to the same IRS agents everyone else does, just without the hours of hold time and redials.

Thanks for mentioning this! I actually already filed my 2022 taxes last month, so I don't think this option works for me anymore? And honestly I'd rather just use the absorption method since my 2022 contributions were low enough to cover the excess from 2021 anyway. But can you explain what you mean by "earnings on the excess"? How would I even calculate that part?

Since you've already filed your 2022 taxes, the absorption method is definitely your best bet now. Regarding the "earnings on the excess" - if you had withdrawn the excess contribution, you would've needed to calculate what portion of your IRA earnings were attributable to that excess amount. Your IRA custodian can usually help calculate this. It's basically a proportional amount of earnings based on the excess contribution compared to your total contribution. For example, if your excess was about 3% of your total contributions, then about 3% of your earnings would be considered attributable to that excess. But since you're using the absorption method instead, you don't need to worry about this calculation at all.

Yes, you would need to file a separate Form 5329 for each tax year where you had an excess contribution. The 6% penalty applies for each year the excess remains in your account. If you never "absorbed" the excess in subsequent years (by contributing less than the max), then the penalties would continue to accumulate. For example, if you over-contributed by $200 in 2020, then over-contributed again in 2021 and 2022, you'd owe: - 6% on $200 for 2020 - 6% on $200 from 2020 PLUS 6% on your new excess from 2021 - 6% on all accumulated excess for 2022 You should address this soon, as the penalties will continue to compound!

This is such a helpful summary, thank you! I'm actually dealing with a similar situation right now - over-contributed by about $150 in 2022 and just realized it when doing my 2023 taxes. Your tip about certified mail is really smart, I wouldn't have thought of that. Quick question though - when you say "the IRS can take a while to process these standalone forms," about how long did it take in your experience? I'm worried about interest or additional penalties piling up while they're processing my Form 5329.