2018 and 2019 excess contributions

[koswami]

Timeline of events:

I opened a Roth IRA in March 2019 and immediately made 2018 and 2019 contributions before April 2019. I realized on 2/20/2020 that I shouldn’t have contributed to either because of the magi limits. I fixed 2019 contributions by converting to a regular IRA (on 2/28/20) and then back door converted back to a Roth (3/5/20). I withdrew the 2018 contribution and send it back to my bank account (3/5/20).

What should I do from a tax standpoint? I understand there is a 6% penalty. 

1) Do I need to amend 2018 tax return? If so, how do I do it because I did it in taxact.

2) Do I 6% penalty for 1yr or 2yrs? The 2018 contribution was made in March 2019. Which tax return do I pay this amount?

3) For 2019 tax return, in turbotax do I enter the IRA contributions as roth or traditional?

[dmertz · Accepted solution]

1)  You must file 2018 Form 5329 and pay the 6% penalty on the excess contribution made for 2018.  Regarding amending a tax return using TaxAct,you'll have to ask that question on a TaxAct forum.

2)  You owe another 6% penalty with your 2019 tax return on the 2018 excess contribution.  When asked in 2019 TurboTax, indicate that you had an excess contributions from 2018 carried into 2019.

3)  In 2019 TurboTax, under Deductions & Credits:

1. Enter the Roth IRA contribution made for 2019.
2. Indicate that you switched (recharacterized, not converted) the contribution to be a traditional IRA contribution.
3. Enter the explanation statement
4. Answer Yes, you contributed to a Roth IRA before 2019.
5. Answer Yes when TurboTax asks to track your Roth IRA basis.
6. Enter your basis in Roth IRA contributions, including the excess contribution made for 2018.
7. Answer Yes you have excess Roth IRA contributions.
8. Enter the excess from 2018.
9. Enter your December 31, 2019 total balance in Roth IRAs.

You'll report the Roth conversion on your 2020 tax return.

Before the end of 2020 you must obtain a regular Roth IRA distribution of exactly the amount of the 2018 excess contribution.  You'll report this distribution on your 2020 tax return, eliminating another 6% penalty on this amount for 2020 and beyond.

[lagsag]

Hello @dmertz ,

I withdrew an excess contribution into a ROTH IRA for 2019 tax year in 1/2020. I received the 1099-R which showed $183.02 gross distribution. 2a is blank. Distribution codes are PJ.     Do I need to now enter this 1099-R in an amended 2019 tax return or do I put this 1099-R info in my 2020 tax return?                      Is this all I need to do to? Just update a 1099-R for a 2019 tax return. Do I have to physically fill out a 5329 or 8606 for the amended 2019 tax return?

[dmertz]

lagsag, it's odd that box 2a is blank.  Box 2a should generally have a dollar amount in box 2a even if it's zero. 

Is box 2b Taxable amount not determined marked?

How much contribution did you request to be returned?

Did you move the HSA to another custodian between making the contribution and requesting the return of contribution?

There is no need to amend your 2019 tax return if it already reflects the net Roth IRA contribution made for 2019.