Solved: 2018 and 2019 excess contributions
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Level 1

2018 and 2019 excess contributions

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?

1 Best answer

Accepted Solutions
Level 15

2018 and 2019 excess contributions

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.

View solution in original post

1 Reply
Level 15

2018 and 2019 excess contributions

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.

View solution in original post

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