In August 2022, I made a $7,000 ROTH Contribution to a credit union because I believed our MAGI would be low enough to allow this Voluntary ROTH Contribution.

In October 2022, my wife also made a Voluntary $7,000 ROTH Contribution to a credit union also believing that our MAGI would be below the threshold.

When we completed our 2022 taxes in early 2023, we learned that our MAGI was over the limit.

We contacted the respective credit unions and had both $7,000 ROTH Contributions removed and all interest payments removed prior to the required IRS filing date of April 18, 2023.

Thus far, all we have received from these credit unions are IRS 5498 Forms showing that we each had contributed $7,000 to our respective ROTH IRAs plus an indication of the total amounts on deposit in these ROTH IRAs.

From research, it appears we should file an amended IRS 1040x and pay taxes on the interest removed from our ROTH IRAs (interest which should not have been earned in our IRAs). However, we have now learned that our credit unions will be sending each of us IRS 1099-R Forms which will show each respective $7,000 overpayment, plus the interest earned in the ROTH IRAs which had already been removed prior to the April 18, 2023, filing deadline. FYI, we are both over 70.

If we file an amended IRS 1040x now for 2022 tax year and pay the interest actually received from the excess contributed ROTH IRAs, will the IRS 1099-R Forms we receive in early 2024 cause us to have to pay tax again on this interest?

On another question, if we file an amended IRS 1040x now and explain everything, it appears we may be able to avoid the 6% penalty [Within six months of the original filing date (OCT 2022)]. 

As we understand, "Withdrawal of excess contributions. For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made."

IF you remove the contribution Before your taxes are due but after filing your return: You can avoid the 6% excise tax. You will need to file an amended return within six months of the original return due date (generally by October 15). Write “Filed pursuant to section 301.9100-2” at the top of Form 1040X. If the excess generated any earnings, you’ll need to remove them and include them on your gross income.

What about IRS FORM 5329 (2022), do we need to file this with the Amended IRS 1040X? This form makes it sound like the 6% penalty must be paid on the $7,000 plus interest earned on it in 2022, reagardless of notifying IRS before or after filing taxes on April 18, 2023.

This is all very confusing, even to tax preparers we have questioned. If anyone has any filled out examples of what needs to be filed now this would be greatly appreciated. We need to know what to do next year when we both receive these IRS 1099Rs from our credit unions.

Thank you for your help.