dmertz
Level 15

Retirement tax questions

1)  DianeC958's comment that you quoted doesn't really make sense as written.  The 2018 excess contributions must be withdrawn by making regular distributions from each of the Roth IRAs equal to the amount of each individual's excess contribution for 2018 .  You are correct, there is no way to maintain these as 2018 contributions. That opportunity was was lost by not making a timely correction.  This money just ends up in your pocket.

 

The portion of the comment about a backdoor Roth only potentially applies to the 2019 contributions.

 

2)  Because you are subject to the 6% excess contribution penalties on the excess contributions made in 2018, no earnings on the 2018 excess contributions are required to be removed.

 

3)  Yes, because the excess contributions for 2018 will not have been corrected until 2020, on these excess contributions you owe a 6% penalties calculated on 2018 Forms 5329 and additional 6% penalties on these same excess contributions on your 2019 Forms 5329.  Your 2020 Forms 5329 will show the excess contributions from 2018 being eliminated by the regular distributions

 

4)  With the recharacterizations, the contributions for 2019 will appear on your 2019 Forms 8606 as nondeductible traditional IRA contributions.  The amounts on line 14 of each of those Forms 8606 will carry forward to line 2 of your 2020 Forms 8606 to be used in calculating the amount of your Roth conversions performed in 2020 and reported on your 2020 tax return.