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How do I report on excess Roth IRA contribution made in 2020?

Forum|Forum|4 years ago
November 26, 2021
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I contributed to Roth IRA in 2020 but my income exceeded the limit. I will submit the excess withdrawal form to the financial constitution.
1) Will I need to amend my 2020 return

2) Will I need to report anything on my 2021 return

3) Can I file with turbo tax?

Thanks!

TurboTax Deluxe Online

Best answer by Opus 17

@hhtax5

First, check your 2020 tax return. If you did not report the excess contribution and did not include form 5329 to calculate the additional 6% penalty, then you need to file an amended 2020 tax return to report the excess contribution and pay the tax.

Then, you need to withdraw the excess 2020 contribution before December 31, 2021. (Remember that you can withdraw contributions from a Roth IRA at any time without paying tax. You will pay income tax and a penalty if you withdraw the earnings before age 59 1/2.)

When preparing your 2021 tax return, TurboTax will ask you for the excess Roth contribution from 2020, which is reported on your amended 2020 tax return form 5329. TurboTax will ask if you made any new Roth contributions or took any Roth withdrawals. When you report that you made a withdrawal equal to the 2020 excess, that will be reported on your 2021 form 5329 and it will zero out the excess so there will be no further 6% penalty.

O

Opus 17

Employee

Don’t withdraw the excess. The deadline to cure the excess contribution by withdrawing it was May 17, 2021 (the regular tax deadline) or October 15, 2021 (if you had a deadline extension). Both of those dates are passed.

You must file an amended 2020 return that calculates and reports the excess contribution and that you did not withdraw it in time. You will be assessed a 6% penalty on the amount of excess contribution.

You will be assessed a further 6% penalty on the excess amount every year that the excess remains on corrected. The only way to correct the excess after the tax filing deadline is by applying the excess toward a future year’s contribution. For example, suppose that due to your income, your contribution limit for 2021 is $4000, and the excess from 2020 was $1000. If you only contributed $3000 in 2021, you could count the $1000 excess from 2020 as part of your 2021 contribution limit. That would clear the excess and you would not be assessed a future penalty.

macuser_22

Employee

While the excess CAN be applied to a 2021 contribution without having it distributed to you, you can also just take a normal distribution of the excess that will not be taxable.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**