After you file

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@71YTA31 wrote:

Ok, then could you address the following:

 

Excess contribution: $3,000

Amount recharacterized: $3,000

Amount transferred: $2500 with loss of $500.

 

Is the above correct? Or are the amounts of recharacterized vs transferred flipped?

 

Also, the prior question about penalty accrual over time is still not clear. Does accrual depend on calendar year or tax filing year? Will not filing the amendment this year and waiting till filing next year after the 1099-R is released cause another penalty to be added?

 

e.g. 

 

Current penalty status is $180. Recharacterized soon after.

After amendment in 2021, penalty is $0.

 

However, if amendment is filed in 2022, then will penalty go to $360, then amendment in 2022 brings it back down to $0? Or will the penalty not automatically increment between calendar years? Meaning that the current penalty stays as is until amendment is filed in 2022?

 

The reason I ask this is from here:

 

https://investor.vanguard.com/ira/excess-contribution

If you discover it after you've filed your tax return

You can either:

• Remove the excess within 6 months and file an amended return by October 15—if eligible, the excess plus your earnings can be removed by this date.
• Remove the excess once discovered, even after October 15. You'll need to reduce next year's contributions by the amount of the excess. For example, if your limit is $6,000 and you exceed it by $1,500 in the current year, you can offset the excess by limiting your contributions to $4,500 the following year.

Be aware you'll have to pay a 6% penalty each year until the excess is absorbed or corrected.

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What you quote is what happens if the excess is neither removed or recharactorized within the time limits, then the 6% applies and repeats each year until the excess is removed with a regular distribution, but can not be simply returned or recharacterized.  You recharactorized in time.

As soon as the recharacterization is entered in the IRA contribution interview as I showed above, the excess disappears as do all penalties.      It does not flow to 2022 because you will have amended before that.

As I said above, the exact amount of the contribution is recharacterized, not accounting for any gains of losses.  If a loss then you simply account for it in the explanation statement.    While any gain is also transferred to the other IRA, losses just mean that the IRA has less money (just like it would be if it remained in the Roth.)