Question

Need advice. Excess contribution to Roth, I didn't file the "Request a Recharacterization or Remove an Excess IRA contribution"

Forum|Forum|5 years ago
June 17, 2020
2 replies
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Hi

I opened a Roth last year and contributed $4000. I was told by Turbo tax in April that since, all of my income came from investments, I am not qualified to have a Roth account. Turbo tax advised me to withdraw my contribution to avoid any penalty. I did so in April. Then, I found out this week, there is paper work required. I need to file out and submit to my brokerage to withdraw any excess contribution. In short, I withdrew contribution from Roth without filling out any form. I have not received any new tax form other than a form 5498 saying I contributed $4000 in October 2019. I am stuck. I don't how to file my tax? Do I file the "Request a Recharacterization or Remove an Excess IRA contribution" now? But, I took the money already? I appreciate all your comments. Thank you for your help.

macuser_22

Employee

Recharacterization is simply applying the contribution to a different type of IRA. If you did not have sufficient taxable compensation to contribute to an IRA then you cannot recharacterize either.

For a 2019 excess contribution you have until July 15, 2020 to request a "return of excess contribution" form the IRA trustee. The trustee must also calculate any earnings attributed to the excess and also return that. You will receive a 2020 1099-R next January that reports that.

If you file a timely extension to file, then you will have until Oct, 15, 2020 to have the excess returned.

If not removed by those dates then it will be subject to a 6% penalty that repeats each year that the excess remains until removed as a regular distribution.

**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.**

macuser_22

Employee

If you already removed the excess as a regular distribution and the account trustee will not change it to a return of contribution (which is doubtful because the earnings attributed to the excess were not removed at the same time) then you can only pay the 6% penalty for 2019 and then the earnings can stay in the account. (Some people do that intentionally if the taxable earnings would exceed the 6% penalty.)

**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.**