Help with IRA Return of Excess Contribution (request was made 2019, and the return was made 2020)

[crystalPP]

This is the first time I ask question here. Anyone please help!

At the end of last year (2019), I opened a traditional IRA account with Fidelity, and due to some website glitch, I made two transfers of $6000.00 each, adding it up to $12000.00 and exceeded the year maximum. So I made the return of excessive contribution request during Christmas time frame, however the return was not completed until Jan, 2020. And I don't have any 1099-G form. I've contacted Fidelity and they said they are going to have the corrected 5498 form in May. Does it mean I have to postpone my return this year? How do I let IRS know and don't get the penalty? 

Thank you so much for your kind help!

[KarenM90 · Accepted solution]

No, you can file on time.

In TurboTax, when you enter your contributions (Deductions & Credits/Retirement and Investments/Traditional and Roth IRA Contributions), enter the entire amount (including the excess) and include that amount in the value at 12/31/2019.  

When you reach the section that lets you know you over contributed (see screenshot below) just enter the amount you withdrew in January to make the correction.

[crystalPP]

Sweet! Thanks so much for your kind help!!

[Cindy F]

Hello,

I made a $7000 IRA contribution in March, 2020 for tax year 2019. 

Now, I am doing my 2020 taxes and discovered that part of that IRA contribution for 2019 was in excess of what was allowed. On March 22, 2021, I  removed the excess amount from my IRA. I entered this information on my 2020 return which I have not filed yet. Am I also going to have to file an amended return for 2019 or is it now fixed? If I have to file a 2019 amended return, should I wait to do that until after I file my 2020 return?

Thank you for your guidance! I've never had this problem before and it's really confusing.

[DanaB27]

Yes, since the contribution was for 2019 you will have to include the contribution in your 2019 tax return. If you haven't done that already then you will have to file an amended 2019 tax return (1040X). Please see How do I amend a 2019 return in TurboTax?. You can file the 2019 1040X anytime, you do not need to wait for your 2020 return.

Since you had an excess contribution on your 2019 return and did not withdraw it by the due date of the 2019 return (October 15, 2020  with extensions) you will have the 6% excess contribution penalty on your 2019 return. This is reported on Form 5329. 

You will also have the 6% penalty on your 2020 tax return since you did not remove the 2019 excess contribution by December 31, 2020.

You will no longer have the 6% penalty in 2021 since you removed the excess contribution in 2021. 

@Cindy F 

[Cindy F]

Thank you so much for your detailed reply!
I just have one follow-up question.

You say that I would have to file an amended return for 2019 if I didn't already include the $7000 IRA contribution on my 2019 tax return. I actually did include the entire $7000 on the 2019 return; I just didn't realize at that time that it was more than I was entitled to for a deduction. So, since I already included the $7000 IRA contribution on my 2019 return, do I still need to do an amended return? If so, what would need amending? From what you said, it doesn't sound like I need to but I want to be sure.

Thank you!!

[DanaB27]

No, since you included the $7,000 contribution in your 2019 return then there is no need to amend your 2019 return. TurboTax automatically calculates any penalties when there is an excess contribution. When you entered the contribution in your 2019 return did it tell you that you had an excess contribution?

@Cindy F