Tax Year Prior to 2020: Excess Roth IRA Contribution

Forum|Forum|6 years ago
March 9, 2020
2 replies
84 views

In 2018 I accidentally contributed too much to my Roth IRA. When I filed 2018 taxes I paid the 6% penatly. Fast forward to now (March 2020), when I just discovered the error.

Getting ready to file 2019 taxes I noticed the 6% tax on the excess. Can I avoid the 6% excess penalty on my 2019 taxes if I remove the excess contribution before the 2019 tax deadline of April 15th 2020?

If yes I understand that I have my brokerage remove the excess. However I assume that I will not get back anthing

that actually verifies I removed the excess (1099-R?) before I file my 2019 taxes. How do I prove to the IRS I removed the excess before the 2019 tax deadline.

I guess I just need an understanding on if I can remove the excess in calendar year 2020 (before tax deadline) and not pay the 6% tax. IE how to report the excess plus interest was removed.

VictorW9

Level 7

Get the custodian of the Roth to return the excess contribution and the earnings from the excess contribution. You will either wait and amend your 2019 return when you receive your 1099-R for 2019. Or you can enter a 1099-R with the information from the custodian with the excess contribution returned in box 1 and the earnings in box 2 which will be taxable along with codes JP on box 7. Then you will ignore the 1099-R you will receive next year. This way, you won't have to amend your 2019 return.

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newmantaxAuthor

Level 2

Thanks. I read something that said the earnings are taxable as income in the year the contribution excess was made. The excess contribution was made in 2018. I am removing it in 2019. Confusing part is will I receive 1099-R for 2019 or 2018?

dmertz

Level 15

Because your excess contribution was made for 2018, VictorW9's answer is incorrect. That answer is only correct for an excess contribution made for 2019.

Because the excess was not corrected in 2019, unless you are eligible to apply the excess as part of a 2019 Roth IRA contribution, you owe another 6% penalty for 2019 and, if you are not eligible to apply it as part of your 2020 Roth IRA contribution, you must obtain a regular distribution of exactly the amount of the excess, with no adjustment for gain or loss, before the end of 2020, otherwise you'll own another 6% penalty for 2020..

newmantaxAuthor

Level 2

So you only have until the tax due date on the year the mistake was made to correct the Roth IRA over contribution. Every year after that you either pay the 6% or make the correction in the same calendar year?

dmertz

Level 15

Correct. You had only until the due date of your 2018 tax return, including extensions, to obtain a return of contribution that would have avoided a 6% penalty for 2018 and avoided carrying an excess into 2019. We are now close to 5 months beyond that October 15, 2019 extended deadline with respect to your 2018 excess contribution.