@sridharm wrote:
Thank you so much for your detailed explanation and I am trying to process everything.
After looking into further looks there is minimal excess Roth IRA contribution made for 2019 and 2020
and mid range excess contribution for 2021. Is the following order of actions is as below .
1. First do I need to amend 2019 and 2020 returns in turbo tax to report excess contribution.
2. Then I address for Year 2021 either using one of the option you proposed. If I opt to request withdrawal of
excess including earning for year 2021.
3. Will the above two steps will address everything or I still need to address the excess contribution of year
2019, 2020. If yes what options I have to address it once for all.
Thank you for your support and understanding really appreciate your help.
Regards,
Sri
You must first amend your 2019 return to calculate the excess. Since you can't remove it, you will have a form 5329 with a 6% penalty, and you will need to pay the penalty when you mail the amended return. Expect the IRS to send a bill for interest since you are paying late.
Second, you must amend your 2020 return. Information from the amended 2019 return will be required to calculate the correct new penalty for 2020, because it will include the prior excess contribution (from 2019) and the current (2020) excess contribution. You will need to pay the penalty when you mail the amended return. Expect the IRS to send a bill for interest since you are paying late.
The third step is to request a return of excess contributions for the 2021 Roth contributions only. This must be done before April 18, 2022, and to keep from getting confused, I would not file your 2021 return until you process the return. The plan trustee will send you the excess Roth contributions and their earnings, if any.
When you prepare your 2021 return, you will need information from the amended 2020 return to calculate and pay another 6% penalty on the excess carried forward from 2019 and 2020. However, you will not report making a 2021 Roth contribution. Because you removed the contribution before the deadline, it's as if it never happened.
The fourth step is to make a regular Roth IRA withdrawal in the amount of the excess from 2019 and 2020. You can make this withdrawal any time in 2022 but it must be before December 31, 2022, and don't wait to the last day since most plans take 3-4 business days to actually process a withdrawal. You don't need to withdraw the earnings as well, only the principal contribution. (The withdrawal of earnings rule only applies to excess that is withdrawn within the April 18 deadline. Any earnings from the 2019 and 2020 excess can stay in the Roth IRA.)
The fifth step is to file your 2022 tax return. You will need information from your 2021 return about the excess carryover and the penalties. When you report the regular Roth withdrawal, this will cancel out the excess carry forward so you won't be charged any further excess penalties. You will also report a 1099-R if the trustee paid you earnings when you withdrew your 2021 excess. The earnings income from excess contribution will be subject to regular income tax plus a 10% penalty if you are under age 59-1/2.
