Excess Contributions Roth IRA Married Filing Separately

Forum|Forum|6 years ago
January 21, 2020
12 replies
100 views

My husband and I started filing married filing separately for student loan benefits in 2017. (As I sit here today, I now know we cannot directly contribute to a Roth IRA if we make over $10,000 and how to get money into a Roth via a Traditional IRA.)

We hired a CPA to do our taxes in 2017. We gave him our tax documents showing contributions to a Roth IRA and income in excess of $10,000. He said nothing about the income limit.

We contributed to the Roth IRA in 2018 and used Turbo tax to do our taxes. The software did not prompt us or cue us to the fact that we made excess contributions.

We contributed to the Roth IRA in 2019. I will be recharacterizing those contributions and putting them into a Traditional IRA.

After speaking to one CPA (not so great) and two Turbotax professionals (who were great), I believe these are the steps I need to take.

1. File amended returns for both my husband and myself for 2017 and pay the 6% penalty on the contributions and earnings.

2. File amended returns for both my husband and myself for 2018 and pay the 6% penalty for 2018 contributions and earnings and for 2017 contributions and earnings.

3. Withdraw the excess contributions and earnings ASAP and put them into a traditional IRA.

First question: If I remove the excess contributions before the filing date for 2019 taxes, do I have to pay the 6% penalty on our 2019 taxes for 2017 and 2018?

Second question: Removing the funds will be a taxable event for 2020 and I will incur a 10% penalty on the withdrawal, correct?

Third question: Am I missing anything?

Thank you so much in advance.

MinhT1

Level 15

1. If you withdraw your Roth contributions of 2017 and 2018 and their earnings before April 2020, you are still liable for the excise tax of 6% in 2019.

2. Removing the funds in 2020 will make you liable for the penalty of 10% and income tax on the earnings only, not on the amounts you contributed.

3. Make sure that you are eligible for a Traditional IRA in 2019 taking into account your filing status and your MAGI. For this, please read this IRS document.

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kate3116Author

Level 2

Do I need to withdraw the earnings on the excess contributions?

Or can I keep them in the account since I will have paid the penalty?

Thank you!

MinhT1

Level 15

You have to withdraw the excess contribution and its earnings. If you do not, you will have to pay an excise tax of 6% for every the excess or the earnings remain in your Roth IRA.

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