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Prior Year ROTH IRA Excess Contributions

Hi! I have my facts below on my ROTH IRA. I am hoping to get help and clarity on the following: 1) if my calculated allowed contribution in 2018 is correct; and 2) how much penalties I should pay and the process/forms I should file or amend each year (from 2018 to 2022).

 

I read similar articles but they are different from my case. I opened ROTH IRA in 2018. For 2018, my MAGI is $124,000 so I calculated allowed contribution and excess contribution. For 2019 and onwards, my MAGIs were above limit so any contributions are excess contributions. Please note of the rounded amounts.

 

2018 - Contributed $5,500. Allowed contribution based on MAGI of $4,000 and Excess contributions of $1,500. No withdrawal.

 

2019 - No contribution. No withdrawal.

 

2020 - Excess contributions of $10,660. Withdrew $1,000 as excess contributions. Received 1099-R with the filled boxes: Box 1 - $1,000; Box 2b - marked x; Box 7 - J.

 

2021 - Excess contributions of $5,800. Withdrew $11,600 as excess contributions. I received 2 sets of 1099-R in 2021 from my financial institution:

First set - Wrong 1099-R - Box 1 - $11,600; Box 2b - marked x; Box 7 - J. I received and used this in my income tax form before filing deadline on April 18, 2022.

Second set - Corrected 1099-R - Received two 1099- Rs. 1) 1099-R with only filled boxes are: Box 1 1- $5,290 and Box 7 - 8J. 2) 1099-R with only filled boxes: Box 1 - $6,310; Box 2a - $310; Box 7 - PJ. I received this after filing.

 

2022 - Withdrew the remaining balance of my ROTH IRA $13,400 in May 2022 and is now closed and zero balance.

 

Total contributions - $21,960; Total withdrawals - $26,000

 

All my withdrawals should be return of excess contributions except for earnings and allowed contribution (if correctly calculated) in 2018 as early distribution.

 

Thank you so much.

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4 Replies

Prior Year ROTH IRA Excess Contributions


@C2per wrote:

Hi! I have my facts below on my ROTH IRA. I am hoping to get help and clarity on the following: 1) if my calculated allowed contribution in 2018 is correct; and 2) how much penalties I should pay and the process/forms I should file or amend each year (from 2018 to 2022).

 

I read similar articles but they are different from my case. I opened ROTH IRA in 2018. For 2018, my MAGI is $124,000 so I calculated allowed contribution and excess contribution. For 2019 and onwards, my MAGIs were above limit so any contributions are excess contributions. Please note of the rounded amounts.

 

2018 - Contributed $5,500. Allowed contribution based on MAGI of $4,000 and Excess contributions of $1,500. No withdrawal.

 

2019 - No contribution. No withdrawal.

 

2020 - Excess contributions of $10,660. Withdrew $1,000 as excess contributions. Received 1099-R with the filled boxes: Box 1 - $1,000; Box 2b - marked x; Box 7 - J.

 

2021 - Excess contributions of $5,800. Withdrew $11,600 as excess contributions. I received 2 sets of 1099-R in 2021 from my financial institution:

First set - Wrong 1099-R - Box 1 - $11,600; Box 2b - marked x; Box 7 - J. I received and used this in my income tax form before filing deadline on April 18, 2022.

Second set - Corrected 1099-R - Received two 1099- Rs. 1) 1099-R with only filled boxes are: Box 1 1- $5,290 and Box 7 - 8J. 2) 1099-R with only filled boxes: Box 1 - $6,310; Box 2a - $310; Box 7 - PJ. I received this after filing.

 

2022 - Withdrew the remaining balance of my ROTH IRA $13,400 in May 2022 and is now closed and zero balance.

 

Total contributions - $21,960; Total withdrawals - $26,000

 

All my withdrawals should be return of excess contributions except for earnings and allowed contribution (if correctly calculated) in 2018 as early distribution.

 

Thank you so much.


I will give you the rule.    An excess that is not removed by the due date of the tax return for the year of the excess has a 6% penalty reported on a 5329 form for that that year.  That 6% penalty repeats each year until removed.

 

So for 2018 you had a $1,500 excess so you owe a $90 (1500 X .06) penalty. 

 

For 2019 it was not removed so you owe another 2019 $90 penalty.

 

For 2020 $1,000 was removed so you still owed a $30 penalty for the $500 of the 2018 contribution not removed. 

 

Here it gets confusing.  You say an 2020 excess of $10,600 but the maximum contribution amount can only be $6,000 ($7,000 if over age 50).   Were you contribution for both 2020 and 2021?  Please explain???

 

Your 1099-R's with codes PJ and 8J are those 2021 1099-R's of 2022 1099-R's???

 

If 2021 the, then code PJ indicates that $6,000 of the 2020 excess and $310 earnings were timely removed so only the $310 earnings are reportable income on your 2020 tax return.  The code 8J indicted that $5,290 of your 2021 $5,800 excess was timely returned and is not taxabl on yiur 2021 tax return (was there a $510 loss)?

 

It would appear that the remaining 2018 $500 was still not removed so another 2021 5329 and $30 penalty.

 

For 2022 you should  receive a 1099-R and pay any tax on the earnings.

 

You might want to go to a tax professional to get they all straightened out.

**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.**

Prior Year ROTH IRA Excess Contributions

Thank you so much for your response! I really really appreciate it!

Here it gets confusing.  You say an 2020 excess of $10,600 but the maximum contribution amount can only be $6,000 ($7,000 if over age 50).   Were you contribution for both 2020 and 2021?  Please explain???

For 2020, I contributed $10,660. I contributed $4,660 in Feb 2020 and was thinking for it as part of 2019 tax year contribution and made the contribution before filing my 2019 return. Then, I contributed $6,000 between Sept to Dec 2020 for 2020 year. 

 

Your 1099-R's with codes PJ and 8J are those 2021 1099-R's of 2022 1099-R's???

Both the two 1099-Rs indicated bold 2021 year in the form, and I received them in May 2022.

 

The code 8J indicted that $5,290 of your 2021 $5,800 excess was timely returned and is not taxabl on yiur 2021 tax return (was there a $510 loss)?

I am not sure if there's a loss, but it looks like it.

 

I am trying to look for a tax professional, but no luck on finding one. Thank you so much again!

 

Prior Year ROTH IRA Excess Contributions

There are several places to find a professional or EA (Enrolled Agent) - here is one:

https://taxexperts.naea.org/

**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.**

Prior Year ROTH IRA Excess Contributions

Hi, I responded to clarify the 2020. May I ask if you could suggest next steps on it? Thank you so much!

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