Carry Over of Excess Roth IRA Contribution

[Plimbacher]

I contributed too much to my 2019 Roth IRA and m missed this. I was reading on Vanguards excess contribution forms that I possible could carry over this excess into the next available tax year, 2021.

Is this true???

I realize I will still owe the penalty for the excess to the IRS, **bleep**... penalized for saving too much just does not make sense to me. But I digress. 

Thank you for the help/guidance..

[GloriaL]

Yes, that is true. You can remove the excess, but will need to reduce next year's contributions by the excess amount.

For example, if your limit is $6,000 and you exceed it by $1,500 in the current year, you can offset the excess by limiting your contributions to $4,500 the following year. However, you will continue to pay the 6% penalty each year until the excess is absorbed. Your retirement broker should be able to help you with accomplishing this.

[Plimbacher]

Thank you Gloria for responding. Sounds like I am better off moving it to my non IRA account, pay the penalty and then move those funds back to the Roth IRA up to the $7000 limit. I don't want to pay a penalty for two years...

Pete 

[dmertz]

Unless you are able to apply the excess Roth IRA contribution for 2019 as a Roth IRA contribution for 2020 you'll owe a 6% penalty on this amount with your 2020 tax return in addition to the 6% penalty on your 2019 tax return that you must pay when your file your amended 2019 tax return.  Applying the excess as a 2021 Roth IRA contribution or before the end of 2021 simply obtaining an regular distribution of the amount of the excess contribution (with no adjustment for investment gain or loss) will eliminate the penalty for 2021 and beyond. 

If you are not sure if you will be eligible for a Roth IRA contribution for 2021, you can obtain a regular distribution of the excess from the Roth IRA before the end of 2021 and you'll have until April 15, 2022 to make a new contribution for 2021 if you are eligible.