Excess Roth IRA Contribution

[WillZ]

I have been reading lots of discussions on this forum and trying to find the correct solution to solve my excess Roth IRA problem.

Here is the story: I made a $6,000 Roth IRA contribution in 2019. When I filed tax return in July 2020, I realized that I was not eligible to make the contribution for 2019 so I made a request to withdraw the amount from my account and indicated that I would withdraw the excess before deadline in TT. However, when I was preparing for 2020 tax return in February 2021, I just realized that the request was not processed by my bank for some reason. So I had to made a normal distribution to withdraw the $6,000 contribution and $1,693 earnings (I have leaned that withdrawing earnings was a mistake) in March 2021. 

Based on my research, I think what I need to do now to report the excess contribution and the correction I did would be: 

1. Amend 2019 tax return to report excess contribution of $6,000 and pay the 6% penalty. 

2. Enter a Form 1099-R with code J P into 2020 tax return so I don't have to amend the 2020 return later. 

Is this solution correct? And since I have withdrawn the excess contribution in February 2021, do I still have to pay 6% penalty for 2020? Thank you in advance!   

[DanaB27 · Accepted solution]

1. Yes, you will have to amend the 2019 tax return to report the excess contribution and pay the 6% penalty. Please see How do I amend my 2019 return?

2. No, since you didn't withdraw the excess contribution by the due date of the 2019 return and withdrew it in 2021 you will receive a 2021 1099-R with code J that will go on your 2021 return.

Yes, you will have to pay the 6% penalty for 2020 since the excess contribution was not removed by 31 December, 2020.

[WillZ]

Thank you for answering my questions, DanaB27! I have completed the amendment in 2019 TT and ready to print and mail the forms. Do I need mail the state tax amendment too? TT shows no refund or amount due. My state is Massachusetts. 

[DanaB27]

If your state return did not change then you do not need to amend your state tax return.

[WillZ]

Thank you! Really appreciate it!