2020 Overcontribution
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Hieb2012
Level 1

2020 Overcontribution

I accidentally contributed too much to my 2020 IRA this year.

 

I contributed $7000 to a traditional IRA and $1000 to a Roth IRA.  My intent was to contribute $6000 to my traditional IRA but I lost track and contributed too much.  The Roth IRA was used in previous years but due to a jump in income in 2019, I wanted to reduce my tax liability as much as possible.

 

I've since purchased and sold several stocks and am now fully invested in stocks.

 

What do I need to do to rectify this situation?

 

I know that I must sell off at least $1000 worth of securities in each account, but how do I know if I owe interest, penalties, etc. and what do I do to withdraw?  I assume an excess contribution form?

 

Any help is appreciated. 

 

Thank you.

4 Replies
macuser_22
Level 15

2020 Overcontribution

You have until the due date of your 2020 tax return (April 15, 2021) to request a "return of excess contribution" (NOT a regular distribution) from your IRA.   The IRA custodian must return the $1,000 excess plus any earnings attributed to the excess.     They will issue a 1099-R next January for you to report it on your 2020 tax return.   Only any earnings returned will be taxable/

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Hieb2012
Level 1

2020 Overcontribution

How do I know what excess earnings are attached to that original $1000?

macuser_22
Level 15

2020 Overcontribution

The returned amount will be in box 1 on the 1099-R that you will receive ans the taxable earnings will be in box 2a.  Just enter the 1099-R into TurboTax and TurboTax will do the rest.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Critter-3
Level 15

2020 Overcontribution

@Hieb2012 

 

How do I know what excess earnings are attached to that original $1000?

 

That is the broker's job ... they will put it on the 1099-R.

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