Multiple years of Roth IRA excess contribution. How to report?

[tdo061803]

I have a sticky situation here. There are some questions so thank you in advance whoever has the patience and kindness to help me.

I need to report excess contribution on Roth IRA and take penalties.

2014 excess contribution - contributed Jan 2014 - removed in June 2020 - 6% penalty for 6 years

2015 excess contribution - contributed Feb 2015 - removed in June 2020 - 6% penalty for 5 years

2016 excess contribution - contributed Jun 2016 - removed in June 2020 - 6% penalty for ? years

2017 excess contribution - contributed Feb 2017 - removed in June 2020 - 6% penalty for 3 years

2018 excess contribution - contributed Jan 2019 - removed in June 2020 - 6% penalty for 1 years

2019 excess contribution - contributed Jan 2019 - removed in January 2020 - no penalty

1. How do I calculate the number of years I need to take penalty? Esp. for 2016 and 2018. 2016 was contributed in June 2016. 2018 was contributed in Jan 2019.
2. Do I report them in each year’s year return by making tax amendments?
3. I am still waiting for 2016’s amendment result. What should I do with that year?
4. 2014-2016 have passed the time frame for tax amendment. What should I do?
5. There is no 1099-R for these removals. Should I report anything on this year’s return and how do I do that in Turbotax?
6. How do I calculate penalty considering gain/loss from the excess contribution? 

[macuser_22 · Accepted solution]

#1)   You must file a 5329 for for each year starting with a 2014 5329 part IV that would have the 2014 excess and the 6% penalty on that excess.   For 2015 file a 2015 5329 with both the 2014 excess and 2015 excess so the 6% penalty will be for both.    Likewise for each year 2017-2019 (the 2019 would have the total of 2019 excess and all prior years).

#2)  You can amend, but the penalty will not affect anything else on the tax return so the 5329 can be mailed by itself.

#3)  Just mail the 2016 5329

#4) The time limit is to amend for an additional refund.  There is no statute of limitations of you owe additional tax.

#5) If you removed all the excess in 2020 then you will receive one of two 2020 1099-R forms in 2021.    The prior years excess should be a normal distribution with a code J in box 7 or J1 if under age 59 1/2.   The 2019 excess removed in 2020 should have a code JP in box 7 indicating a "return of contribution" and not as a normal distribution.

#6 Because you must pay the 6% for 2014-2018 then the earnings for those years are allowed to remain in the IRA and need not be removed or taxed.   The financial institution should calculate and return the 2019 excess plus the earnings attributed to the 2019 excess and report the earnings in box 2a on the 2020 1099-R with the code JP - those earnings will be taxable income.

When entering the 1099-R's the interview will ask for prior years contributions not previously removed - include the total of ALL contributions including the excess contribution so the returned contributions will not be taxable income - only the 2019 earnings will be taxable.

[macuser_22]

In addition, you can download blank 5329 forms and instructions for prior years here:

https://apps.irs.gov/app/picklist/list/priorFormPublication.html;jsessionid=pLJQIUKKcBlEegTdjkyR0uF5...

[Opus 17]

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@macuser_22 wrote:

#1)   You must file a 5329 for for each year starting with a 2014 5329 part IV that would have the 2014 excess and the 6% penalty on that excess.   For 2015 file a 2015 5329 with both the 2014 excess and 2015 excess so the 6% penalty will be for both.    Likewise for each year 2017-2019 (the 2019 would have the total of 2019 excess and all prior years).

Should the customer wait until the 1099-R is issued on January 31, 2021, to submit the forms 5329 for 2014 through 2018?  

If the customer has not filed their 2019 tax return, what do they do about the excess 2019 contribution removed in January 2020?

Also, to the customer: If you mail a series of form 5329s with checks for the penalty amounts, you will still be assessed interest and possibly a late fee.  This is hard to calculate so I would not try to add it to your payment now, but I would expect to receive a bill in the future.  The interest owed on past-due payments is about 0.4% per month (it's a variable rate and each month has a different rate).  There is also a late payment penalty of 0.5% per month with a maximum of 25%.  Interest is charged both on the tax that was overdue and the penalty.  Once you get the bill for the penalty and interest, you can apply for an abatement of the penalty, although the interest can't be waived by law. 

https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-first-time-penal...

[macuser_22]

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@Opus 17 wrote:

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Should the customer wait until the 1099-R is issued on January 31, 2021, to submit the forms 5329 for 2014 through 2018?  

If the customer has not filed their 2019 tax return, what do they do about the excess 2019 contribution removed in January 2020?

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The 5329's  for the 2014-2019 years is not connected to the 1099-R for the prior years excess distribution.   The 5329 is required because it was not timely removed.   When (or if) it is removed anytime in the future does not change what is reported on the 5329 form for each year that the excess remained at that years end.

Only the 2019 contribution removed in 2020 before the due date requires a 1099-R.

It is possible to enter a "dummy" 2020 1099-R into 2019 to avoid having to amend 2019 when the 1099-R comes  but ONLY if they know for sure the code that will be  JP in box 7 and the exact amounts that will be in box 1 and 2a.  

[tdo061803]

These are all useful information. Thank you @macuser_22 @Opus 17 

1. On Form 5329, should I use my current address or address at the time of filing?

2. Form 5329 instruction ask to include a check when mailing in the form. I don't have checks. I can pay online at IRS.gov. Should I pay online and include a copy of payment confirmation in each year?

3. How can I separate each year's Form 5329 when I mail them so IRS process all the years and don't get confused with all the paper?

Thanks again!!

[macuser_22]

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@tdo061803 wrote:

These are all useful information. Thank you @macuser_22 @Opus 17 

1. On Form 5329, should I use my current address or address at the time of filing?

2. Form 5329 instruction ask to include a check when mailing in the form. I don't have checks. I can pay online at IRS.gov. Should I pay online and include a copy of payment confirmation in each year?

3. How can I separate each year's Form 5329 when I mail them so IRS process all the years and don't get confused with all the paper?

#1)  The address where the IRS can currently reach you with mail.

#2) That should be fine.  Attach the receipt.

#3) If that worries you the  mail in separate envelops, but should not be a concern.

[tdo061803]

Thank you again. 

I have been trying to find the correct address to file. 

Here is my situation:

I live abroad.

I am sending form 5329 by themselves

I paid electronically and include payment confirmation

Which address should I send these forms?

I found the below link that might be the address I need. Could you please confirm? 

https://www.irs.gov/filing/international-where-to-file-form-1040-addresses-for-taxpayers-and-tax-pro...

Thank you!!

[macuser_22]

See:

https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad

Where to File

If you are a U.S. citizen or resident alien (Green Card Holder) and you live in a foreign country, mail your U.S. tax return to:

Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215
USA

Estimated tax payments should be mailed with form 1040-ES to:

Internal Revenue Service
P.O. Box 1300
Charlotte, NC 28201-1300
USA