Excess Roth IRA Contribution for multiple years
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Excess Roth IRA Contribution for multiple years

We recently discovered excess Roth IRA contributions starting in 2017.

We have fixed the excess for 2020 needing some guidance for 2017-2019.

We have our excess numbers for all years and the income on that excess for those years.

I've already started my amended returns and know my 6% penalties.

 

But there are a few things that I can't find consistent answers on.

1. How do I claim the previous years income on my amended returns, as interest income as if I had a 1099-Int?

2. Do I remove the income from previous years in addition to the excess contribution (exp, $2000 excess, $500 income, remove $2500)?  Again, 2020 is already fixed, this is previous years.

3. What forms do I need to submit with the 1040-x?  Turbotax includes all the forms in the updated PDF.  Do I just need the 1040-x + 5329?

 

My CPA and retirement advisor have been little help on this.

2 Replies
Level 15

Excess Roth IRA Contribution for multiple years

You must file a 5329 form for each year that there was an excess in the IRA.   The excess has a 6% penalty reported on the 5329 that repeats each year that the excess remained in the IRA - then means that the 2017 excess has a 2017 6% penalty, a 2018 and 2019 penalty.    Since the excess was removed before the end of 2020 there is not 2020 penalty.

 

Since the penalty must be paid, and earnings can stay in the IRA and do not need to be withdrawn.

**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.**
Level 15

Excess Roth IRA Contribution for multiple years

The distributions of the excess contributions for 2017 through 2019 must be made by making a regular distribution of the total excess.  As macuser_22 said, since these are not being removed before the due dates of your 2017 through 2019 tax returns, any earnings attributable to the 2017 through 2019 contributions remain in the Roth IRA.  The regular distribution will be from the contribution basis added by your 2017 through 2019 contributions, so it will not be taxable.

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