Roth contribution errors discovered years later

[jmttaxforum]

According to a brokerage statement, the original funding for a Roth that I made in 2013 was mistakenly attributed to the 2012 tax year before the account even existed (error #1) and it was made past the contribution deadline for 2012 (error #2) and the contribution exceeded the annual limit (error #3).

How all of that got past both the brokerage and the IRS is a mystery unless everything was automated with no oversight. I hadn't looked at the statement until now. If a 5498 was issued to the IRS, I no longer have a copy.

I haven't contacted the brokerage yet, it being the weekend. What I'm hoping for is that the brokerage can apply the correct year, 2013, which would correct errors #1 & #2. The excess amount would be "deemed absorbed" in 2014, when no contributions were made, and I would file a 5329 and pay the excise tax due for 2013.

I'd appreciate any constructive feedback before I find a tax lawyer.

[DanaB27]

Yes, you should be able to apply the excess from 2012 to your 2013 contribution in your 2013 tax return on 2013 Form 5329. You would enter the excess from 2012 on line 18. On line 19 you will enter the amount you are allowed to contribute for 2013 minus any other amount you contributed in 2013.  Finish filling out part IV and there shouldn't be a penalty if you were able to apply the full excess as a 2013 contribution. Your financial institute wouldn't have to do anything for this transaction.

You would only have to pay the 6% excess penalty for 2012 calculated on 2012 Form 5329.

Please see Prior year Form 1040-X if needed.

[jmttaxforum]

Hi DanaB27,

Thanks for the response. After some due diligence this is my understanding of the situation:

The entire contribution of $12,500, which I intended to be split between 2012 ($6,000) and 2013 ($6,500), is “excess” for 2012 because it was made one day past the deadline for 2012 IRA contributions. A 5329 has to be filed for 2012 to report the excise tax due on the entire amount.

$6,500 of that excess will be absorbed as the contribution for 2013 and the excise tax on the remaining $6,000 will be reported on a 5329 for that year.

The remaining $6,000 of excess will be absorbed as the contribution for 2014.

As for the amended returns for 2012 and 2013 which will be filed with their respective 5329s, the only change will be to line 9 where the excise tax will be reported as “other taxes”. The information in all of the other fields can be copied from the original return.

[DanaB27 · Accepted solution]

Yes, that is accurate you will have a penalty for 2012 and 2013. For 2012 it should be $750 (6% of $12,500) and for 2013 $360 (6% of $6,000). In 2014 the excess will be absorbed and you won't have a penalty on Form 5329.

Yes, you will have the 6% penalty on line 9 for Form 1040-X for 2012 and 2013.

[jmttaxforum]

In regard to contributing past the deadline, according to my trustee it can take up to three days to transfer funds electronically from a source and I wonder if the IRS would take that into account. The transfer having been recorded as contributed (settled) on April 16th per a statement, it would have to have been initiated earlier, say between Friday April 12th and Monday April 15th. Funding sent by a check mailed and postmarked up to April 15th would be accepted even if received/settled/contributed by the trustee after the contribution deadline. Would the same apply to the three day electronic transfer delay?

If so, I would only owe a $390 excise tax for 2012 on the excess $6,500 which would then have been absorbed in 2013.