Excess IRA contribution discovered when amending 2019 return

Forum|Forum|5 years ago
February 10, 2021
11 replies
40 views

In amending our 2019 return, I found that my husband (age 57) made an excess contribution of $3164 to his traditional IRA. Turbotax suggests in order to avoid paying a penalty, to withdraw the excess contribution from his IRA before the filing deadline, which was last year. He hasn't contributed anything to his IRA in 2020 - is it possible to apply the excess contribution to 2020, or do we need to withdraw the excess + money earned on it asap? Is there a simple way to resolve this?

Thanks in advance for any help/advice!

fanfare

Level 15

using the amount you could be contributing for 2020 to "work off" your excess is the easiest solution !

He must have earned income of at least $3164 to resolve it completely.

See Form 5329 Part III .

TopangamamaAuthor

Level 4

He didn't have any earned income in 2020, but I did. As a married couple does my earned income count or does he specifically have to have earned income? Thx

fanfare

Level 15

Refer to the spousal IRA law which allows your income to be used for his contributions as long as his income is lower than yours.

fanfare

Level 15

You originally asked,

"is it possible to apply the excess contribution to 2020,"

subtract the excess from what you could contribute in 2020 and reserve for this purpose..

If you already used up that amount as a contribution for 2020,

you could try again next year, you will pay the 6% two times.

If your growth is way up it could be worth it. already you must pay 6% at least once.

there is no 10% penalty to take out excess contribution.

@dmertz the computed earnings is not considered an early withdrawal under age 59 1/2, right ?

fanfare

Level 15

also important.

after a year has passed,

the earnings on your excess will remain in your Roth IRA when you remove the excess.

I'm thinking of putting $6,000 into two Roths,

merging them and trading Tesla.

Let it rip. I have no compensation.

dmertz

Level 15

Any gains that accompany a return of contribution from an IRA are subject to income tax and, if the distribution i made before reaching age 59½, to an early-distribution penalty. The retuned contribution itself is not subject to any penalty.