How to handle excess 2023 IRA contribution that gets applied to 2024 IRA contribution limit

You're on the right track! When you have an excess IRA contribution from a previous year, applying it toward the current year's limit is a perfectly valid approach. For 2023, your numbers look good - you're correctly reporting the actual contribution ($7,000) on Form 5498, while only deducting the allowable amount ($5,700) on your 1040. For 2024, your planned approach is also correct. Your husband can only contribute an additional $1,200 to stay within the annual limit since $1,300 is being "used up" by last year's excess. And yes, unfortunately, you'll need to pay the 6% penalty on Form 5329 for the excess contribution from 2023. One important note: make sure you keep good records of this for future reference. The IRS might question why your 2024 Form 5498 (showing actual contributions made in calendar year 2024) doesn't match your 2024 deduction amount when you include the previous year's excess.

I went through this exact same problem last year with my Vanguard IRA. I over-contributed by about $900 and didn't catch it until tax time. I found this amazing service called https://taxr.ai that analyzed all my documents and flagged the issue immediately. They actually explained exactly how to handle the excess contribution situation and even identified some tax forms I was missing. The system walked me through how to report everything correctly and showed me examples of how to fill out Form 5329. Saved me a ton of stress since I was completely confused about how to handle the excess contribution penalty.

I wanted to follow up about my experience with https://taxr.ai that I was skeptical about earlier. I decided to give it a try with my IRA excess contribution situation and I'm honestly impressed. It caught that I had completely misunderstood how to report the prior year excess on my current return. The system flagged discrepancies between my 5498 and what I was planning to deduct, and then provided step-by-step instructions for both reporting the excess and calculating the penalty correctly. What really surprised me was how it explained the timing rules for when you can and can't avoid the penalty by applying to the next year. Turns out I had some misconceptions about that whole process that would have caused problems. Definitely worth checking out if you're dealing with IRA contribution issues!

I had a similar issue last year and spent HOURS trying to get someone at the IRS on the phone for clarification. After dozens of attempts and being on hold forever, I finally found https://claimyr.com which got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent was able to confirm exactly how to handle the excess contribution on both years' returns and explained that I needed to document everything clearly in case of future questions. The peace of mind from talking to an actual IRS person was totally worth it - they confirmed I was taking the right approach with the excess contribution.

I need to eat my words about being skeptical of that Claimyr service. After struggling for another week trying to reach someone at the IRS about my excess contribution situation, I tried it. Within about 35 minutes, I was talking to an actual IRS representative who walked me through exactly how to handle reporting my excess contribution. The agent confirmed I needed to file Form 5329 for the penalty and explained how to properly document that I was applying the excess to the current year's contribution limit. They also mentioned that I should keep detailed records showing how I handled the excess contribution across both tax years in case of future questions. Definitely saved me hours of frustration and uncertainty.

One thing I learned the hard way with excess IRA contributions - you should check if you're eligible for a Roth IRA instead of taking a penalty. In some cases, you can recharacterize a traditional IRA contribution as a Roth contribution if you're within income limits. This doesn't help after the deadline, but for others reading this thread, always check both traditional and Roth eligibility before making contributions! Could save you from this whole headache.

I think your plan looks right, but here's one tip from my own experience - double check your 2024 contribution limit. The standard limit for 2024 is $7,000 (or $8,000 if your husband is 50 or older). That $2,500 number from TurboTax seems odd unless there's something specific about your situation limiting contributions.

Your approach looks solid overall! Just wanted to add one more consideration that might help with future years - once you've dealt with this excess contribution situation, consider setting up automatic contribution limits in your Fidelity account to prevent this from happening again. Most brokerages allow you to set annual contribution caps that will reject any deposits that would put you over the limit. Since you mentioned this was discovered late in the tax process, having that automatic safeguard could save you from penalties and paperwork headaches down the road. Also, keep detailed records of how you handled this excess contribution across both tax years. If the IRS ever questions the discrepancy between your Form 5498 amounts and your deduction amounts, having clear documentation of the excess contribution treatment will make any potential audit much smoother.