Excess ROTH IRA contribution for 3 yrs

Forum|Forum|2 years ago
February 6, 2024
1 reply
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For years 2020,2021 and 2022 I have made $6000 for traditional IRA and $6000 for ROTH IRA thinking $6000 limit was for each IRA. Essentially I made an excess contribution of $18,000 for 3 yrs to ROTH IRA and realized it in May 2022. I asked my brokerage to remove the excess of $18,000 and distribute the holdings to a non IRA account. $18,000 invested was worth around $15,600 when they distributed the excess to non retirement account in July 2022.

i got 3 1099- R forms in 2022 and 2 of them had taxable amounts as 0 with distribution codes J, P on one and 8, J on one . Third one said taxable amount not determined with distribution code J.

To make it worse I missed this form in Jan 2023 and didn't include in my tax filing for 2022

Question is do I do an amended return for 2020,2021 and 2022 ? Or just 2022 amended return is good. How do I pay the penalty for 2020 excess contribution

Not A Product Question

Best answer by fanfare

return of excess contribution:

after tax due date including extensions: you distribute the excess amount being carried forward on 5329,
(or offset it with currently allowed contribution) .
An amended return will be needed supplying Form 5329 since there is a 6% penalty per year on excess contributions .
Earnings stay in the Roth account.

---------------------------------

Since you had a loss there are no earnings.

You must amend 2020, 2021 and 2022 to add Form 5329

2020 penalty on $6,000

2021 penalty on $12,000

2022 resolution of $18000 by distribution of entire remaining amount, so there is no penalty.

@Pk841

fanfareAnswer

Employee

return of excess contribution:

---------------------------------

Since you had a loss there are no earnings.

You must amend 2020, 2021 and 2022 to add Form 5329

2020 penalty on $6,000

2021 penalty on $12,000

2022 resolution of $18000 by distribution of entire remaining amount, so there is no penalty.

@Pk841

fanfare

Employee

reply back if you want more information on how to amend on paper.

@Pk841

Pk841Author

Thank you @fanfare ! Very helpful. How about state taxes? I live in NJ and all these excess ROTH contributions were reported as State distributions in 1099-R in 2022. Should I be paying the same 6 % penalty every year for NJ taxes ? Also would be there be any tax needed to be filed for state distribution?