Excess Roth Contribution and Recharacterization

[todd68]

I had excess contribution to my Roth IRA in 2018 and forgot to pull it out in 2019, but just did in 2020 (there were no earnings). I also had excess contribution in 2019, put the contribution and earnings into a traditional IRA and then just recharacterized (I think that is the correct term) the contribution and earnings back into my Roth IRA. 

I am stuck in figuring out how I report that I removed the 2018 contribution to avoid a future 6% tax. Also, how do I correctly put in the money I put in the traditional IRA and then back into the Roth IRA?

Thanks

[macuser_22]

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@todd68 wrote:

I am stuck in figuring out how I report that I removed the 2018 contribution to avoid a future 6% tax. Also, how do I correctly put in the money I put in the traditional IRA and then back into the Roth IRA?

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You did not remove the 2018 contribution before April 15, 2019 so the 6% penalty cannot be avoided.   It not reported on your 2018 tax return then you need to amend 2018 and add the Roth contribution and a 5329 form with the 6% penalty.

You also need to do the same for 2019 and pay another 2019 6% penalty because it was also not removed before December 31, 2019.    Because the 6% penalty  must be paid, there is not need to remove any earnings attributed to the excess.

If you had another 2019 Roth excess, how was it put into the Traditional IRA?   Did you instruct the Roth IRA custodian to recharactorize it to a Traditional IRA?

[todd68]

For 2018 excess, I paid the 6% last year and expected to pay if for 2019 as well. How do I show that it has been removed? 

For the 2019 excess, I moved the money from the Roth to Traditional back to Roth with the help of Vanguard. 

[macuser_22]

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@todd68 wrote:

For 2018 excess, I paid the 6% last year and expected to pay if for 2019 as well. How do I show that it has been removed? 

For the 2019 excess, I moved the money from the Roth to Traditional back to Roth with the help of Vanguard. 

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You remove it form the IRA contribution section in 2021 when you do your 2020 tax return.  You do nt remove it now because it was NOT removed before the end of 2019.

The proper way to report the recharacterization and earnings which is to enter the 2019 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2019 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.