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IRA comedy of errors - 'pro rata' traditional IRA; mixed roth & traditional contributions in a year and dealt with excess incorrectly; reported roth contributions as NDT... years ago
First I'll start with a narrative of how I discovered this and then describe the issue chronologically.
Narrative
This year, 2025, I realized that an account I thought was a traditional IRA was actually a Roth when I finally looked at a statement for the account (I had made the account nickname something like "traditional2"). I opened the IRA account in 2021 (when I already had a Traditional and Roth IRA accounts with money in them). In 2022 I told Turbotax that the contribution I made to that account in 2021 was a non-deductible traditional contribution. This meant the 8606 that I filed that year is wrong. While digging into how to fix that and report the correct basis (I had prior basis from 2017) I realized I had also made mistakes in 2020.
In 2020, I contributed too much towards my 2019 IRA. In April 2020 I read about removing your contribution before the deadline and how that meant the contribution basically did not happen. But I did not realize the issues that arise from the fact that removal of excess 1) is done through a form through your broker 2) uses a last in first out rule for contributions 3) counts Roth contributions after traditional contributions for excess contributions. Not knowing all of that, I withdrew an amount equivalent to the excess from my traditional IRA without telling my broker.
Ok - feel free to use that as a test question if you're a tax professor.
Chronological - all IRA so I will shorten to Roth and traditional at times
2017 - ~800 of basis (non-deductible traditional) is contributed to a traditional IRA and reported on 8606
2019 - contributed ~1000 to Roth IRA, then 4500 to traditional for 2019 tax year
2020 - contributed another 1000 to Roth for 2019 tax year then panic researched and removed 500 from the traditional before April 15 thinking I’ve fixed the problem of an excess contribution. I also thought the contribution didn’t ‘exist’ so it was not reported, I just reported a 4000 contribution as deductible for 2019 and didn’t report the withdrawal for 2020.
Note: even it was an allowed return of contribution, I removed too much since my NIA was negative for the contribution I was trying to remove. If it is an allowed return of contribution, I would treat the difference as an early withdrawal, right? Also, I contributed to 2020 Roth IRA within 60 days of withdrawing the 500 from traditional, but didn’t report it as a rollover. I have a 1099-R with 500 in box 1 (gross) and 2 (taxable), "taxable amount not determined" checked, and code 1 in box 7, Distribution Codes.
2021 - contributed 6000 to roth across two accounts but reported 1000 as non-deductible traditional (thinking 1 account was traditional)
2022-2024 contribute max Roth
2025 - realize my errors
I’ve tried to distill the events to only the relevant information.
What I think I need to do:
- Report the 500 non-deductible contribution I made in 2019 on an 8606, hopefully getting relief from further penalties on not filing 8606.
- Amend 2020 to report the 500 tIRA withdrawal along with an 8606 for withdrawing basis and 5329 for early withdrawal penalty (excess contribution covered in point 3). Pay a 10% penalty tax and income taxes on the taxable portion, hopefully getting relief from further penalties on not filing 8606.
- Amend/refile 2021 8606 and hopefully get relief from further penalties for overrepresenting my basis.
- Pay excess contribution penalties (w 5329) of $30 (6% of 500) for 2019, 2020, 2021, 2022, 2023.
- Withdraw $500 from Roth IRA now to end penalty - can I still do this in time for 2024 or can I only reduce my contribution for 2025 now (max minus 500)?
Am I right? Do I have any other options? My main goal is to correctly file my 2021 8606 because I put down that I had 0 prior basis and 1000 of new basis for the year. Both of which are wrong. I would love to not have to touch the issue from 2019/2020 but I think I have to.
Thanks in advance for reading through the post and helping.