Question

How to report several excess Roth Contributions

Forum|Forum|3 years ago
March 29, 2023
1 reply
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I am old enough to make catch up Roth IRA contributions.

On March 30, 2020, I made a prior year (2019) contribution of $7,000 to my Roth IRA.
A few days later, on April 3, 2020, I made a current year (2020) contribution of $7,000 to the Roth IRA.
In calendar year 2021 I made two contributions to the Roth IRA in the total amount of $7,000.
On October 13, 2022 I made another $7,000 contribution to the Roth IRA.

The problem is that within minutes of making that 2022 contribution and purchasing stock shares my skin began to crawl with the thought that something was amiss. There was. Pub 590a revealed that because neither my joint-filing wife nor I had earned income after 2018, all of these contributions were excess contributions.

5. The market still being open on October 13, 2022, I immediately sold the shares purchased a few hours earlier, calculated the earnings attributable to the contribution portion and withdrew the combined value of contribution + earnings.

Fast forward. I am now in TurboTax (been using for many years) to do 2022 taxes and imported from Fidelity a 1099-R with a code T in box 7. This is the first time having to deal with this issue and could not find my way around TT and searched the TT Community. I found many variations on the theme that seemed close to being analogous, but offered varying solutions, leaving me without a clue as to how to properly proceed. Can you help?

IRA

D

DanaB27

You will have to pay the 6% penalty for each year that the excess stayed in the account:

On your 2019 tax return, you will pay the 6% penalty for the 2019 excess contribution.
On your 2020 tax return, you will pay the 6% penalty for the 2019 + 2020 excess contribution.
On your 2021 tax return, you will pay the 6% penalty for the 2019 + 2020 excess contribution.

Please see How do I amend my federal tax return for a prior year?

Technically, you only had to remove the earnings for the 2022 and 2021 excess contributions since the other excess contributions were removed after the due dates. For the 2022 and 2021 excess, you should have requested the withdrawal of excess contributions plus earnings to get the correct codes in Form 1099-R. The earnings for the 2021 excess belong on the 2021 tax return on a form 1099-R with code PJ and the earnings for the 2022 excess belong on the 2022 tax return with Form 1099-R code 8J.

It seems you got a regular distribution for the full amount. And you might want to check with your financial institution if this can be corrected.

On your 2022 return, you will enter your Form 1099-R and this will show that you removed the excess on Form 5329 line 20:

Click "Wages & Income" (under Federal) on the left
Scroll down and click "Show more" next to "Retirement Plans and Social Security"
Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)"

If you had the Roth IRA for 5 years then it won't be taxable since it is a Qualified Distribution.

You also will enter the excess contributions from prior years so it will be entered on line 18 of Form 5329:

Click “Deductions &Credits” on the left
Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
Select “Roth IRA”
On the "Do you have any Excess Roth Contributions" answer "Yes"
On the "Enter Excess Contributions" screen enter the total excess contribution from 2020 and 2019.

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C

cwcurrierAuthor

Hi @DanaB27,

Thank you for your prompt reply! I do need some clarification, though, regarding the statement that I “only had to remove the earnings for the 2022 and 2021 excess contributions since the other excess contributions were removed after the due dates.”

First, of the four excess contributions listed in me query, only one was removed -- the 2022 contribution along with its attributable earnings. NONE of the prior contributions have been removed, because I am unsure of how to proceed on that point in TT.

Second, I am under the impression that all earnings from all excess contributions must be removed. Is this not true?

All else makes sense to me at this point, and, yes, I did get a regular distribution for the 2022 excess removal and its attributable earnings. My online request for a withdrawal from my Roth was not questioned.

Again, thanks for the reply and I look forward to the clarification on the above.

Best regards,

AmyC

Employee

1. Your tax return for this year will need to reflect all of the excess contributions and their earning in your account for the 6% penalty.

2. True. There is no age limit to contributing to an IRA but there is an income requirement. Therefore, all of the excess contributions must be removed with their earnings.

However, let's clarify what is an an excess contribution. You will need to know the amount of ROTH withdrawn from the accounts for each year you over-contributed.

You have read Pub 590a but let's review this section which states:

A 6% excise tax applies to any excess contribution to a Roth IRA.

Excess contributions.

These are the contributions to your Roth IRAs for a year that equal the total of:

Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or properly converted from a traditional IRA or rolled over from a qualified retirement plan, as described later) that are more than your contribution limit for the year (explained earlier under How Much Can Be Contributed); plus
Any excess contributions for the preceding year, reduced by the total of:
1. Any distributions out of your Roth IRAs for the year, plus
2. Your contribution limit for the year minus your contributions to all your IRAs for the year.