@71YTA31 wrote:
There is a penalty for excess contributions at 6% per year. Hence the need for recharacterization. If the recharacterization occurs after the original filing deadline, then an amendment must be submitted. Therefore, the original filing includes the penalty. The amended return does not show the penalty.
There would be no penalty unless your original tax return showed the penalty and you paid it. When you amend the penalty will disappear and if you paid it then it will be a refund.
The 6% penalty ONLY applies if the excess is not EITHER removed by the due date of the return (or extended due date) OR recharacterized. Once the due date (or extended due date) passes the 6% penalty cannot be avoided by removing or recharacterizing.
If the original tax return was filed on time (for 2020 that was May 17) then the extended due date is Oct 15, 2021 to remove or recharacterize is automatic. That means the removal or recharacterization must be done before Oct 15,2021, NOT that the amendment must be filed by that date - you have 3 years from the original filing date to amend. The time limit is on the removal or recharacterization, not the amendment.
**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.**
