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Please help to determine my Roth IRA excess vs withdrawal for 2021. Can I roll it back to either of my IRA if I shouldn't withdraw it?

Forum|Forum|2 years ago
March 26, 2024
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Hi there,

I believe I have made a big mistake. I have been struggling to determine whether the Roth IRA conversion should be deducted from MAGI. Last week I finally asked my IRA provider Fidelity to remove the 'excess' contribution from 2021.

Here is the timeline:

2021 Tax - AGI 170,000. This AGI included the 50,000 Roth IRA conversion. I made a 5k Roth IRA contribution for 2021.

2024 March - Requested Fidelity to remove 5k as '2021 excess'. They have deposited the 5k to my brokerage account.

I tried to amend my 2021 return via Turbotax desktop version to report as 'excess'. However, it does not flag for any 'penalty'.

Questions:

1. What was my MAGI in 2021? Was I eligible to make 5k Roth contribution that year?

2. If I did not make an excess, I really don't want to withdraw it. Am I able to put it back now? The withdrawal made was last week.

3. What are my options to reduce the damage if I can't put it back to my IRAs? Can I ask Fidelity to send a new update to IRS to change from '2021 excess' to '2024 distribution'?

4. What are the tax years I need to file amend to IRS? FYI, I haven't filed my 2023 tax because of this...

TIA.

FortuneCookies

Not A Product Question

Best answer by dmertz

Assuming no additions are required to your AGI to produce your MAGI for the purpose of a Roth IRA contribution and that your Roth "conversion" was not an In-plan Roth Rollover but instead resulted in a deposit into a Roth IRA as you have implied, your MAGI for this purpose is $170,000 - $50,000 = $120,000 which puts your 2021 MAGI below the threshold where your eligibility to make a Roth IRA contribution begins to phase out for all filing statuses but Married Filing Separately. Based on these assumptions, it seems that you made no excess contribution for 2021.

The distribution that you received should have been an ordinary Roth IRA distribution (code J, T or Q only) because it's far too late to obtain a return of contribution before the due date of your 2021 tax return. Because it has been less than 60 days since this regular distribution was made, you can roll over this distribution back into a Roth IRA as long as you have done any traditional IRA-to-traditional IRA or Roth IRA-to-Roth IRA rollovers in the one-year period ending on the day before you received this distribution that you would be rolling over.

The distribution and rollover would be reportable on your 2024 tax return, nothing about it or any excess contribution on your 2021, 2022 or 2023 tax returns.

D

dmertzAnswer

Employee

Assuming no additions are required to your AGI to produce your MAGI for the purpose of a Roth IRA contribution and that your Roth "conversion" was not an In-plan Roth Rollover but instead resulted in a deposit into a Roth IRA as you have implied, your MAGI for this purpose is $170,000 - $50,000 = $120,000 which puts your 2021 MAGI below the threshold where your eligibility to make a Roth IRA contribution begins to phase out for all filing statuses but Married Filing Separately. Based on these assumptions, it seems that you made no excess contribution for 2021.

The distribution that you received should have been an ordinary Roth IRA distribution (code J, T or Q only) because it's far too late to obtain a return of contribution before the due date of your 2021 tax return. Because it has been less than 60 days since this regular distribution was made, you can roll over this distribution back into a Roth IRA as long as you have done any traditional IRA-to-traditional IRA or Roth IRA-to-Roth IRA rollovers in the one-year period ending on the day before you received this distribution that you would be rolling over.

The distribution and rollover would be reportable on your 2024 tax return, nothing about it or any excess contribution on your 2021, 2022 or 2023 tax returns.

F

FortuneCookiesAuthor

Hi @dmertz ,

Sorry more follow-up questions:

1. The Roth conversion was made from my Rollover IRA (funded from previous 401k) to Roth IRA. It means this is the type of 'deposit into a Roth IRA', right?

2. No I did not have any rollover activity in the past year. I called Fidelity on Sunday if they could reverse the transaction or roll the money back from my brokerage account to Roth in case I have confirmed it wasn't an excess. They said they couldn't. Does the rollover rule have to be like to like account transfer within 60 days? What's the better approach to tell Fidelity about the rollover request?

D

dmertz

Employee

1. Yes, the taxable amount of such a conversion is subtracted from AGI when determining the MAGI for the purpose of a Roth IRA contribution.

2. Fidelity can't undo the distribution, but since this was a regular distribution that actually was not a distribution of any excess, the distribution is eligible for rollover within 60 days (since it would not be a violation of the one-rollover-per-12-months limitation).

Just make sure that they did a regular distribution and did not somehow do a return of any 2023 contribution you might have made (which would allow you to treat an excess as part of your 2023 Roth IRA contribution). A return of a portion of your 2023 Roth IRA contribution would not be permitted to be put back, although, with that amount of a 2023 contribution having been undone, you would still have room to contribute to a Roth IRA for 2023.