In 2012 I overcontributed to my Roth IRA by $333. I need to correct this overcontribution -- all forms to file and all actions to take.

[scubacoder10]

In 2012 I overcontributed to my Roth IRA by $333. I know that I need to file form 5329 (with line 24 = 333 and line 25 = 20) for years '12, '13, '14, and '15.

It's 2016 and 2017, that I want to clarify:

- I will request a distribution of the $333 overcontribution (not including earnings since it's not a timely withdrawal). The distribution will be completed in March 2017 (this month / year).

- I will receive a 1099 for my early distribution from my roth IRA and I will report the early distribution, penalty, etc on my 2017 form 1040

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- For 2016, do I still fill out the 5329 in the same way as I did for '12, '13, '14, and '15? (since the distribution was not completed by 12/31/2016)

- For 2017, do I file a 5329 with line 20  (2016 distributions from roth IRAs) = 333, so that line 24 totals to 0 and so line 25 also equals 0?

Is this correct? In particular: am I correct about not withdrawing earnings and the way to file 5329s for 2016 and 2017? Is there anything I'm missing? Will I need a form 8606?

[dmertz · Accepted solution]

I assume that you were not eligible to apply this $333 as a contribution for any year after 2012.

Yes, your 2016 tax return must include Form 5329 to report this excess contribution that remained in your Roth IRAs at the end of 2016.

Yes, your 2017 tax return will include Form 5329 to apply your distribution on line 20 to be subtracted from the excess shown on line 18.

Yes, you are correct about not needing to withdraw earnings.

Yes, assuming that this Roth IRA distribution is not a qualified distribution, it will appear on Form 8606 Part III.  It will not be taxable since it will be a distribution of contribution basis.

[scubacoder10]

No I maxed out contributions in all other years. For 2016 I'm eligible only for traditional IRA contribution because income is too high.

If I were eligible for Roth contribution in 2016, would there be another way to fix this by reallocating that contribution to the 2017 year and avoid the 2016 penalty?

Thanks so much for your help. Exactly the answers I needed! I couldn't find this exact explanation in the tax code or instructions. And the IRS was useless when I called. Even PWC (my tax preparer) gave me wrong information.

[dmertz]

In addition to the $333 distribution from the Roth IRA not being taxable, it will also not be subject to penalty.

"If I were eligible for Roth contribution in 2016, would there be another way to fix this by reallocating that contribution to the 2017 year and avoid the 2016 penalty?"

Yes, if you were eligible for a $333 Roth contribution for 2016 and had you already contributed the maximum traditional IRA contribution for 2016, you could obtain a return of contribution of $333 of the traditional IRA contribution for 2016 before the due date of your 2016 tax return and then allocate the $333 of excess Roth IRA contribution as a 2016 Roth IRA contribution.  But since you are not eligible for a Roth IRA contribution for 2016, that's not an option.

All of the necessary information is contained in Form 5329, Form 8606, and the instructions for each.  It just takes a bit of combining bits and pieces of information from each to reach the correct conclusions.  It seems that you actually did bring that information together (except for thinking that the distribution from the Roth IRA will be subject penalty).

[fanfare]

The amazing thing is you could make a $3000 profit on that $333 (for example) and you still get to keep the $3000 in your Roth IRA tax free and working for you.

[scubacoder10]

Re form 8606, I think I do not need the form, per the bottom of page 5 in the 8606 instructions. Since the distribution is

a) after the due date of my 2012 return (the year of the excess contribution)

b) did not involve a deduction (it was a roth contribution so there was no tax deduction to take)

c) the total for the year was under 2012's $5k overall maximum contribution

So for 2017 taxes I will file:
- 5329 showing 0 excess contributions remaining
- 1040 will have line 15a=333 and line 15b=0 since none of the distribution is taxable based on 8606 instructions (and also no need to file the 8606)
- an explanation of all the above 🙂


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"The amazing thing is you could make a $3k profit..."

Not really...you pay a 6% penalty on the excess every year. That should pretty much wipe out most gains you'd make, if not more.

[dmertz]

Yes, you'll need 2017 Form 8606 to be included with your 2017 tax return.

The instructions at the bottom of page 5 of the 2016 Instructions for Form 8606 are explicitly for a return of excess contribution from a *traditional* IRA, not a Roth IRA.

A distribution made from your Roth IRA after the due date of your tax return is a *regular* distribution.  If you have not reached age 59½ by the time you make the distribution, this regular distribution *must* be reported on Form 8606 Part III.  (I assume that some of your contribution for 2012 was not an excess contribution or your made contributions for years prior to 2012, so at least you have met the 5-year holding period for the distribution to be a qualified distribution, leaving only the age 59½ requirement.)

[scubacoder10]

Ah, thanks. So to clarify,

Let's say that from 2012-2014, I made a total of R valid contributions to my roth IRAs and I made an excess contribution X to my Roth IRA in 2012. X is not part of R, so at the end of 2014, the total amount that I had personally deposited into IRA accounts was (R+X).

I also made S traditional, valid IRA contribution in 2015 which was converted to a Roth IRA in the same year.

This year, 2016, I withdrew the excess contribution, X.

My 8606 part 3 for 2016 will look like (Is this correct?)
line 19 (nonqual'd distributions): X
line 22 (roth basis): R + X
line 24 (basis in conversions): S

Should line 22 be (R) or (R+X)?

I report -X- on line 15a of my 1040. I report the taxable amount  from 8606, line 25 on line 15b.



My total personal contributions to Roth IRA (prior to withdrawal of excess) is (X + R + S). Is it correct that as long as I never withdraw more than that amount, I will never owe any tax on the distribution? Since,
line 23 = X - (X + R) = -R
line 25  (line 23) - S = -R - S < 0

Now, let's say for next year (2017), I'm filling out form 8606 again, and I have made no additional contributions to Roth IRAs or traditional IRAs:
Would line 22 (basis in roth IRA) be -R-, still?

[dmertz]

2016 Form 8606 line 22 should be R + X.  However, lines 23 and 25 will be zero (they are not permitted to be less than zero).  TurboTax probably won't bother populating line 24 because line 23 is zero.

In 2017, your net Roth IRA basis will be R = R + X - X which would appear on 2017 Form 8606 line 22 should you make a nonqualified Roth IRA distribution in 2017.

[scubacoder10]

@dmertz, you're epic. Thanks so much for your help.