Receiving a Roth IRA penalty even though I'm under income limits and contribution caps?

This is likely a case of mismatched reporting. The IRS isn't seeing what you're seeing, which happens more often than you'd think. There are a few possibilities to consider: First, check if you have any other retirement accounts where you might have made contributions that, when combined with your Roth IRA contributions, exceed the annual limit. Remember that the $6,500 limit applies across all IRA accounts (traditional and Roth combined). Second, verify your modified adjusted gross income (MAGI) calculation. While your gross income was $103,000, your MAGI might be different depending on certain deductions and adjustments. The Roth IRA income limits are based on MAGI, not your regular AGI. Third, check if there were any recharacterizations or conversions that might have been reported incorrectly. Sometimes brokerage firms make reporting errors. Lastly, it could simply be an IRS error. Request a detailed explanation of the penalty by calling the number on your notice. Ask specifically what contributions they're flagging as excess and why.

After dealing with a similar issue last year, I found an incredible tool that saved me hours of frustration and probably thousands in penalties. Check out https://taxr.ai - they specialize in analyzing IRS notices and retirement account issues. I uploaded my confusing Roth IRA penalty notice and my account statements, and their system identified the exact discrepancy causing the problem. Turns out my brokerage had incorrectly coded a rollover as a new contribution. The report they generated explained everything in plain English and gave me exact instructions on how to respond to the IRS with the right documentation. Their analysis shows you exactly what the IRS is seeing versus what's in your records. It's like having a tax expert look over your shoulder but without the crazy hourly rates.

I was super skeptical about taxr.ai when I first heard about it (as you can see from my comment above), but I finally gave it a try out of desperation when I got hit with a similar Roth IRA penalty notice claiming I had excess contributions. No joke - within 20 minutes of uploading my documents, I had a complete analysis showing exactly why the IRS flagged my account. Turns out my employer had incorrectly reported a SEP IRA contribution on my W-2, which made it look like I had contributed to multiple accounts over the limit. The report showed me exactly which box on which form was causing the issue. I printed their response template, sent it to the IRS with the documentation they suggested, and the penalty was removed completely three weeks later. Saved me $1,200 in penalties plus whatever I would've paid an accountant to figure this out.

I had almost the exact same problem last year! After getting nowhere with the IRS phone line (kept getting disconnected after 2+ hour waits), I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They basically hold your place in the IRS phone queue and call you when an actual agent is on the line. When my call finally connected, I explained my Roth IRA penalty situation to the agent, who confirmed there was an error in how my contributions were reported. The agent was able to see that my brokerage had coded something wrong and initiated the process to remove the penalty. Without Claimyr, I would never have reached a human at the IRS. I literally tried for weeks before giving up and trying their service.

Ok I need to eat crow here. After posting my skeptical comment above, I was still dealing with a similar Roth IRA penalty issue and couldn't get through to the IRS after multiple attempts. Out of frustration, I tried Claimyr. I'm honestly shocked at how well it worked. I got a text about 1 hour and 40 minutes after signing up saying they had an IRS agent on the line, and within seconds I was connected. The agent was able to pull up my account, see that there was indeed a reporting error from my brokerage, and start the process of removing the penalty. What would have taken me days of redial attempts took just one morning where I could actually do other things while waiting. Just got confirmation yesterday that the penalty is being removed. I'm still surprised this actually worked.

Double-check if you did a backdoor Roth conversion at any point! I had almost the identical situation and it turned out that the form 8606 for my nondeductible traditional IRA contribution wasn't filed properly before I converted to Roth. The IRS systems flagged it as an excess contribution even though it was completely legitimate.

Has anyone actually checked to see if the contribution limits changed? I swear I remember reading something about the Roth limits being adjusted down for certain income brackets in a recent tax law change.

Make sure you didn't accidentally contribute to 2023 and 2024 in the same calendar year but exceed the limit for one specific tax year. I see this mistake all the time with clients. For example, if you put $3,000 in January 2024 for tax year 2023, then put another $6,000 in November 2024 for tax year 2024, the IRS might have incorrectly counted all $9,000 toward 2024.