dmertz
Level 15

Retirement tax questions

The first rep is correct.  It's too late to withdraw the excess in 2020.  However, if you are eligible to contribute to a Roth IRA for 2020, you can apply the excess as a 2020 Roth IRA contribution.  The second rep apparently thought that the excess contribution was one you had made for made for 2020, not 2016.

 

Assuming that you are not eligible to contribute to a Roth IRA for 2020, your 2020 tax return must include Form 5329 Part IV reporting the excess and paying the 6% excess contribution for 2020, the same as you have done for 2016 through 2019.

 

Correcting the excess in 2021 requires that you either be eligible to apply the excess as some or all of your 2021 Roth IRA contribution or for you to make a regular distribution of exactly the amount of the excess with no adjustment for any investment gain of loss.  The distribution will be reportable on your 2021 tax return as a nontaxable distribution of contribution basis and on Form 5329 Part IV, eliminating the excess and the penalty for 2021.  (Note that regular distributions are reportable on the tax return for the year in which the distribution is made.  Nothing about this distribution made in 2021 is reportable on your 2020 tax return.)

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