Hello @macuser_22 -
Including you in this thread since you were able to successfully answer a similar question in another thread:
https://ttlc.intuit.com/community/retirement/discussion/excess-roth-ira-contribution-made-in-2017-an....
Mine situation is similar, but with an additional contribution year.
Details:
I'm 38 years old. I opened a Roth IRA during the 2020 tax year (Jan 28, 2020). It’s the only IRA account I have.
The same day, I immediately contributed $6k for 2019, then another $6k for 2020.
During the 2020 year the contributions doubled (gains from stocks).
What I didn't realize until recently was that my AGI for 2019 and 2020 only allow me to contribute a portion of the $6k for each of the aforementioned years.
Rather than worry about withdrawing the correct excess amount for 2019 & 2020, and possibly future years, I decided to:
Liquidate all of my stocks, then
Fill out an Excess Contribution Withdrawal Form through my brokerage firm (completed Jan 2021), which was completed before the 2020 tax deadline. This withdrew all of my funds in my Roth IRA (contributions + earnings from them).
After speaking with both the brokerage firm & TurboTax over the phone, both said I would pay the taxes on earnings + 10% penalty during the 2021 tax year since that's when the excess contribution withdrawal occurred and my 1099-R for it would be generated / sent in Jan 2022. Based on this guidance, I filed my taxes for 2020 without including said earnings + penalty, since I will be include them in my 2021 return.
A few days after filing, however, I was sent a letter (PDF) from my brokerage firm confirming my request to remove an excess contribution before your tax filing deadline (including extensions), along with contributions + earnings calculations, and this statement:
“The amount of earnings returned to you, if any, will be reported as taxable income for the year in which the excess contribution was made.”
So it sounds like this should be filed in 2020. This raises a few questions.
Questions:
1. Should the taxable earnings from both contributions be added to my AGI for the 2020 or 2021 tax year?
2. Is the 10% penalty paid in 2020 or 2021 tax year?
3. Since the 2019 contribution was technically added in the 2020 tax year (Jan 28, 2020) and I withdrew the excess contributions + earned income for it before the 2020 tax deadline, am I able to avoid the 6% excess contribution penalty for it?
