Past Years Roth IRA Excess Contributions (MFS)

[darew0000]

I married my wife in 2014 and realized I have been making excess contributions to my Roth IRA (I put the maximum in every year).  We filed MFS in 2014, 2015, 2016, 2017, and 2019, but I was only able to contribute to Roth IRA if MFJ.  Am I able to amend my tax returns to MFJ going back to 2014?  Will this avoid the 6% per year penalty for excess contributions?  The IRS has never contacted me about the excess contributions.  Do I also need to fill out form 5329 for excess contributions if I amend my tax returns?  

@dmertz

[darew0000]

@dmertz 

dmertz - I saw that you replied and I caught most of your response, but I believe the post has been deleted.  Could you repost please?  I understand that I am able to amend back to my 2016 tax return (if done by April 15, 2020), but are you saying I can't amend my 2014 and 2015 tax returns  MFS to MFJ?  I know I won't get a refund for these years if owed one (since it is past 3 years), but I didn't think there was a time restriction for changing MFS to MFJ.

[dmertz]

I can't imagine where the post went.  It would be impossible to recreate except that the text happened to be present in my browser history.  Here it is:

Depending on your circumstances, you might be able to amend MFS to MFJ for 2016, 2017 and 2018 to avoid those being excess contributions.  Even if you do that you'll still have excess contributions for 2014 and 2015 since those are closed tax years.  The deadline for amending your 2016 tax return is generally April 15, 2020.

You must file Forms 5329 for 2014, 2015, 2016, 2017 and 2018 and pay the penalty for each of those years.  You'll also have the 6% penalty for these excess contributions on your 2019 Form 5329 because they were not resolved before the end of 2019.

Assuming that you are under age 50 and cannot resolve any of the excesses by amending to MFJ,  your Forms 5329 will show the following:

• 2014 excess $5,500, penalty $330
• 2015 excess $11,000, penalty $660
• 2016 excess $16,500, penalty $990
• 2017 excess $22,000, penalty $1,320
• 2018 excess $22,000, penalty $1,320
• 2019 excess $22,000, penalty $1,320
• (total of excess contribution penalties for all years $5,940)

As for your 2019 excess contribution, you have until the due date of your 2019 tax return, including extensions, to either obtain an explicit return of contribution or do a recharacterization to a traditional IRA of the contribution made for 2019 and avoid the excess contribution penalty for that contribution.  You'll owe tax and potential early distribution penalty on any earnings required to be distributed with that returned contribution.

To resolve the excess contributions made for 2014, 2015, 2016 and 2017, you must obtain a regular distribution of exactly the total of any excess contributions made for those years.  You must do that before the end of 2020 to avoid another 6% penalty on this total for 2020.  This distribution will be nontaxable because it is a distribution of your contribution basis.

The IRS does not seem to be in the habit of checking for excess contributions.  It seems that they are perfectly happy to let you rack up yearly excess contribution penalties that they can come after you for at any time since there is generally no statute of limitations on the IRS being able to assess the penalty.

[dmertz]

Regarding amending MFS to MFJ, see section 21.6.1.4.1 of the Internal Revenue Manual:

https://www.irs.gov/irm/part21/irm_21-006-001r

Also, from IRS Pub 17:  https://www.irs.gov/publications/p17

Joint Return After Separate Returns

You can change your filing status from a separate return to a joint return by filing an amended return using Form 1040-X.

You can generally change to a joint return any time within 3 years from the due date of the separate return or returns. This doesn't include any extensions. A separate return includes a return filed by you or your spouse claiming married filing separately, single, or head of household filing status.

[darew0000]

I really appreciate the information.  I'm going to try to amend years 2016 & 2017 as this would be beneficial to avoid the 6% penalty and leave my contributions for those years in the account.  Just a few more questions and I think I am set...  It seems I would need to turn in the 1040X forms first to see if the IRS will accept my amended returns?  This would dictate how much I list as excess for each year on the 5329 forms.  Is this how you see it?

If they accept my amended return MFJ for 2016 & 2017, I believe I would owe the following:

-2014:  $5,500 excess ($330 penalty)

-2015:  $11,000 excess ($660 penalty)

-2016:  $11,000 excess ($660 penalty)

-2017:  $11,000 excess ($660 penalty)

-2018:  $11,000 excess ($660 penalty)

-2019:  $11,000 excess ($660 penalty)

$3,630 total penalty

Then I would take out $11,000 in distribution by the end of 2020 to avoid any further penalties.

Thanks again for your help.

[dmertz]

I don't see why your amendments to change 2016 and 2017 to MFJ would not be accepted.  Of course that will only entirely correct the excess contributions if your modified AGI when your and your spouse's incomes are combined is under the limit for those years ($184,000 for 2016 and $186,000 for 2017).

Amending 2016 and 2017 would not affect your 2014 and 2015 Forms 5329, but you might still want to just send all of the 2014 through 2018 forms together.

Yes, the revised calculations are correct.

Your 2020 Form 5329 will show the $11,000 distribution being subtracted from the $11,000 excess carried into 2020, resulting in a $0 excess for 2020 and beyond.

Your 2020 Form 8606 will show the $11,000 distribution on Part III and your basis in Roth IRA contributions will be subtracted with the result being $0 taxable.

[darew0000]

@dmertz 

Hello again.

I had Roth IRA excess contributions in 2014 and 2015.  I caught the mistake and withdrew the excess amount in 2020.

I know I have to file form 5329 for years 2014, 2015, 2016, 2017, 2018, 2019 and pay the 6% penalty for each of these years.  The 5329 form for 2020 will show a withdrawal of the excess amount and I will not have to pay the 6% penalty for 2020 (I withdrew the amount in Dec 2020).  

Question - Should I send all the past year's (and current) 5329 forms in with my 2020 tax return?  Or do I need to file the past years separate from my 2020 tax return?

[dmertz]

Send only the 2020 Form 5329 with your 2020 tax return.  Send the others as a group separately.

[darew0000]

One last question and I think I'm set.

Do you know what address to send the previous years 2014-2019 form 5329 w/ payment?  I can't seem to find the address anywhere on the form itself, instructions, or IRS website.

I appreciate all your help!

[darew0000]

@dmertz 

FYI - I live in Ohio.  Below is the address I would send a 1040X form.  Is it the same address for Form 5329 (past years)?

Department of the Treasury

Internal Revenue Service

Ogden, UT [number removed]

[dmertz]

If Forms 5329 are sent stand-alone without Forms 1040-X, they are sent to the same address as you would send a Form 1040, which presently appears to be Fresno if you are not enclosing a payment, otherwise Cincinnati.  If you include Forms 1040-X, it appears that the instructions for Form 1040-X say to send it to Fresno.

It appears that you send to Ogden only if you send after June 19,2021, do not include Form 1040-X and you do not enclose a payment.

Still, review the instructions for Forms 5329, 1040 and 1040-X yourself.  They are rather convoluted.