Multiple years of ineligible Roth IRA contributions

[ruibing]

I found out in 11/2022 that I wasn't eligible for the Roth IRA contributions I made in 2017-2021. I was also not eligible in 2022, but thankfully I did not contribute. This mea culpa was due to me not paying enough attention to change in my income after changing jobs. As soon as I realized this, I filled out Vanguard's excess contribution removal form for each year and they moved the contributions to a nonretirement account. I received a 1099-R (Box1: total contribution amount that was removed, Box2a: empty, Box 2b: checked, Box 7: J).

From reading the related community posts and IRS form instructions, I think I understand what I have to do but I just wanted to run through. Please let me know if there's any errors. Hopefully, this will also help others in the future.

• Amend 2017 with 5329. Paying 6% tax on the excess contribution from 2017.
• Amend 2018 with 5329. Paying 6% tax on the excess contribution from 2017+2018.
• Amend 2019 with 5329. Paying 6% tax on the excess contribution from 2017+2018+2019.
• Amend 2020 with 5329. Paying 6% tax on the excess contribution from 2017+2018+2019+2020.
• Amend 2021 with 5329. Paying 6% tax on the excess contribution from 2017+2018+2019+2020+2021.
• Each amended return would be mailed in a separate envelope
• File 2022 with 5329 and 8606
  • 8606 Line 19: total distribution from 1099-R Box 1
  • 8606 Line 22: Net contributions to Roth IRA since it was opened over a decade ago
  • 8606 Line 23: 0 because the distribution was less than the total contribution
  • 5329 Lines 1-4: empty because there's no tax for withdrawing contributions from Roth IRA  (i.e. no double taxation)
  • 5329 Line 18: total excess contributions from 2017-2021
  • 5329 Line 19: 0
  • 5329 Line 20: total distribution from 8606 Line 19
  • 5329 Line 22-25: 0 because the excess was withdrawn before end of 2022
  • No 10% tax on early distribution for federal or state and no 6% tax on the excess contribution for 2022

[DanaB27 · Accepted solution]

Yes, this is all correct. 

Please make sure you use the correct year for each Form 5329. You can look up the prior year's Form 5329 here.

[ruibing]

Yes, I am using each year's corresponding 5329 along with the matching1040-X (July 2021 revision for 2019+ and January 2020 revision for 2018 or earlier).

I do have a few follow-up questions regarding amending returns for 2017-2021:

1) The amended return generated by TurboTax is pretty extensive but, if the only thing changed is the 5329 form, do I only need to mail in 1040-X and 5329?

2) I seem to be able to e-file for 2020-2021. Should I e-file those and mail the rest or just mail them all?

[DanaB27]

1) Yes, you only need to file Form 1040-X and any forms that change (Form 5329 and Schedule 2) when mailing an amended return.

2) Yes, you can try to e-file the 2020 and 2021 amended returns. Please be aware, some customers had issues e-filing prior years' returns. It is supposed to be fixed by next week. Otherwise, you will have to mail all amended returns.

@ruibing 

[ruibing]

What is the e-filing issue for prior years' returns? I haven't file 2020/2021 yet but they wouldn't let me proceed if I chose direct debit for payment.

[ruibing]

Can you please double check one more thing for me?

I was under the impression that because I took the ordinary distribution before the end of 2022, I wouldn't have to pay the 6% penalty on the excess contributions in my 2022 return. This seems to match 2022's form 5329.

Then I stumbled upon https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-1099-r/happens-made-excess-roth-ira... and the wording regarding removing the excess contribution after the tax deadline confused me.

[fanfare]

when you resolve the excess in 2022 and report it on your 2022 Form 5329, the penalty goes away.

@ruibing