@AT25 wrote:
Hi @dmertz,
Thanks for the reply.
To clarify and confirm:
-2020/2021 have no issues once I recharacterize with Schwab (my brokerage)
Will this affect my 2020/2021 tax returns in any way? Since this is already-taxed money. I plan to just roll it into a traditional IRA.
-2019 is my bigger issue. Do you mean I should by withdrawing the $6K I contributed and take a 10% hit? For the Form 5329, is this something that will automatically be captured in my 2021 filing? Or I need to follow up and remember this transaction?
For the 2019 Form 5329, is this something that can be done in Turbo Tax? Or I need to hand-calculate?
Most of the money in the IRA account are already invested into stocks. Does this change anything?
If you contributed $6000 excess in 2019, you need to file an amended 2019 return that reports this fact. You will be assessed a 6% penalty on the excess amount (you will have to send a check with your 2019 amended return).
For 2020, you can recharacterize your 2020 contribution before April 15, 2021. However, you will still pay another 6% penalty on the $6000 excess contribution from 2019 that is still in the account. You will need to file an amended 2020 return to report the contribution to the traditional IRA and the 6% penalty, and include a check for the penalty with your amended return.
If you made contributions in 2021, you also need to recharacterize those, and the deadline is April 15, 2022. You will also withdraw the $6000 excess from 2019 as a regular withdrawal during 2021. You will get a 1099-R for this in January 2022, but withdrawals of Roth IRA contributions are not taxable, and removing the money during 2021 will remove the 6% penalty from your 2021 return.
What will remain in the account will be the earnings from the 2019 excess contribution. These can stay in the account, or if you withdraw them and close the account before age 59-1/2, you will pay income tax plus a 10% early withdrawal penalty.
