Fixing excess RothIRA Contribution for several years

[RothExcessPast]

For the years of 2018-2021 I had my status as 'Married filing separate' so I was able to contribute $0 to my RothIRA. I did not think anything of it as a third party handles my Roth. Once I tried to file this years taxes TurboTax was nice enough to tell me I messed up.
So, I contributed $600 each year for 2018-2021, totaling $2400 excess. I now realize that I shouldn't have done that. For 2022 I only contributed $5700 and I changed my filing status to joint so I'm fine there.

From what I've gathered online all I need to do is:

File a 5329 for 2018, 2019, 2020, and 2021

Send a 6% penalty check for each year, including the next year(s). So $144 for the 2018 form. $108 for the 2019 form. $72 for the 2020 form. And $36 for the 2021 form

Then just not contribute $2100 to my 2023 Roth to absorb the excess from the years past and my 2022 Roth will absorb $300.

Is there anything else I am needing to do or file?

[DanaB27 · Accepted solution]

Yes, you will have to file Form 5329 and pay a 6% penalty for each year the excess remains in the IRA (but it can't be more than 6% of the Roth IRA value). Please see Form 5329 Instructions and Prior year Form 5329 (to find 2018, 2019, 2020, and 2021 Form 5329).

For 2018 Form 5329 you will have to pay the 6% on the 2018 excess ($36).

For 2019 Form 5329 you will have to pay the 6% on the 2018 + 2019  excess ($72).

For 2020 Form 5329 you will have to pay the 6% on the 2018 + 2019 + 2020 excess ($108).

For 2021 Form 5329 you will have to pay the 6% on the 2018 + 2019 + 2020 + 2021 excess ($144).

For 2022 Form 5329 you will have to pay the 6% on the 2018 + 2019 + 2020 + 2021 excess ($144, but you might be able to apply some excess to 2022  since you only contributed $5,700 for 2022 and then the penalty will be less).

Yes, next year you can apply the excess to your 2023 Roth contribution limit to absorb the excess (if you are able to make contributions).

To calculate the 6% penalty on your 2022 tax return and possibly absorb some of the excess contributions in 2022 if your contribution isn't limited by your MAGI :

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2018 + 2019 + 2020 + 2021 ($2,400)
6. On the "How Much Excess to 2022?" screen enter $300 to apply to 2022 (assuming you are under 50).

Next year on your 2023 tax return:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2018 + 2019 + 2020 + 2021.
6. On the "How Much Excess to 2023?" screen enter how much you want to apply to 2023.

Please see What happens if I made an excess Roth IRA contribution for additional information.

[Edited 3/8/2023 | 7:16 am PST]

@RothExcessPast 

[Opus 17]

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@DanaB27 wrote:

Yes, you will have to file Form 5329 and pay a 6% penalty for each year the excess remains in the IRA (but it can't be more than 6% of the Roth IRA value). Please see Form 5329 Instructions and Prior year Form 5329.

For 2018 Form 5329 you will have to pay the 6% on the 2018 excess ($36).

For 2019 Form 5329 you will have to pay the 6% on the 2018 + 2019  excess ($72).

For 2020 Form 5329 you will have to pay the 6% on the 2018 + 2019 + 2020 excess ($108).

For 2021 Form 5329 you will have to pay the 6% on the 2018 + 2019 + 2020 + 2021 excess ($144).

For 2022 Form 5329 you will have to pay the 6% on the 2018 + 2019 + 2020 + 2021 excess ($144).

I think that on the 2022 tax return, the excess will be reduced from $2400 (as of 2021) down to $2100, because the taxpayer was eligible in 2022 and only contributed $5700.

Then for 2023, the taxpayer can absorb the remaining $2100 of excess by contributing $4400 or less (because the regular contribution limit for 2023 was raised to $6500.)

[Opus 17]

I'm curious about why you filed separately for those years.  You could potentially correct the excess by filing amended returns with your spouse to change to married filing jointly. If that results in a refund for 2018, it won't be paid, but it would eliminate the Roth excess contribution.  If amending to file jointly resulted in a refund for 2019-2021, that would be paid.  It would also eliminate the Roth penalties.   You could amend some years but not others, it's not all or nothing, although your Roth contributions would still be disallowed for any year you kept MFS.  

Filing jointly usually results in less overall tax or a larger refund as many deductions and credits are disallowed or reduced when filing MFS, as you have discovered.  (Rarely, MFS will lower your tax, so the only way to know for sure is to test both combinations.)  Joint filing is always allowed even if one spouse doesn't work, as long as you agree.  You can't amend from joint to separate after the April 15 deadline, but the IRS always allows you to amend from separate to joint, if you both agree.

It depends on why you filed MFS in the first place. 

To change from 2 MFS returns to one MFJ return requires a little extra fiddling in Turbotax, we can explain further if you want to look into that. 

[Opus 17]

Also remember you need each year's different version of form 5329, with the correct year in the top corner.  2018 for 2018, 2019 for 2019, and so on.  Remember to sign each form, keep a copy, and mail them in separate envelopes, not all at once.  You may want to use a mailing service with tracking.

You can search and download prior year forms here.

https://www.irs.gov/forms-pubs/prior-year

[RothExcessPast]

Thank you so much for the help and the detail you gave. Had an idea of what I needed but wanted to confirm with other members of the community. I really appreciate it.

This is more of just a broad question that some may or may not be able to answer.

I've read varying degrees from other topics and what not, but would one check for XXXX amount, five separate 5329 forms, and a generic cover letter explaining what I did, all placed into one single envelope work?

Could I simply send that in the mail or would I be better off with one cover letter, five checks and five 5329 forms all attached separately inside a single envelope.

[RothExcessPast]

Thank you for that update and the link to the older forms. Appreciate it.

[Opus 17]

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@RothExcessPast wrote:

Thank you so much for the help and the detail you gave. Had an idea of what I needed but wanted to confirm with other members of the community. I really appreciate it.

This is more of just a broad question that some may or may not be able to answer.

I've read varying degrees from other topics and what not, but would one check for XXXX amount, five separate 5329 forms, and a generic cover letter explaining what I did, all placed into one single envelope work?

Could I simply send that in the mail or would I be better off with one cover letter, five checks and five 5329 forms all attached separately inside a single envelope.

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What you are really asking is, if I mail 5 forms and one check in one envelope, will the entry-level unionized data entry clerk, whose job is to open the envelopes, scan or type in the content, code it to the correct taxpayer, and apply the payments -- will that person process each form correctly without miscoding or misplacing anything.

To imagine it another way, if you handed one envelope to the worst DMV clerk you've ever had, would you trust them to do it properly without you being there to answer questions and to check their work?

I would use 4 separate envelopes, 4 separate forms and 4 separate checks (2018, 2019, 2020 and 2021).  2022 will be e-filed as part of your main 2022 tax return.  That way, if the check was cashed, you have proof they received and opened the envelope.  If you send one envelope with 4 forms and 1 check, or 4 checks, they could always lose a check or a form and then claim you left it out of the envelope. 

[RothExcessPast]

@Opus 17 

Good point. Multiple envelopes it is. Gave me a good laugh so thanks for that.

On a side note. Since I will still have 2100 left in my roth for 2022 as excess, will I have to do a 5329 for that amount for my 2023 taxes?

[Opus 17]

@RothExcessPast 

I believe you would include a form 5329 next year so that you can demonstrate on paper that you have “used up” the prior excess contributions.