Excess 2018 Traditional IRA contribution discovered while preparing 2019 taxes

[sandorbatyi]

Capital one investing was taken over by eTrade in late 2018. 

I made a lump sum ($50 less than Max.) deposit into eTrade by end of year (from inheritance of my mom's passing in 2016) which was $6,450. Since I'm a married filer and over 50, my max 2018 contribution was $6,500. But I forgot I had $100/mo auto deposits from Cap1 checking to Cap1 Investing (IRA) until eTrade took it over.

When doing my 2018 taxes in 2019 February, I thought eTrade tax docs were enough, and they showed $6,450.

Never thought of checking Cap1 docs, which later showed 2x $100 being added to my IRA for 2018, bringing total 2018 contributions to $6,650. I only contributed $1,400 in all of 2019 (for sure this time).

I'm happy to pay $9 tax/fee/penalty (whatever it's called) for the $150 over contribution in 2018. But how is the simplest way? Preferable without printing tax docs and mailing - I'm using computer for everything, since I'm disabled. BTW, eTrade is willing to help me with whatever modifications are needed, but they couldn't advise me on how it would be better for taxes.

[macuser_22]

Because it is too late to get a return of contribution for 2018, you will have to amend 2018 and include the contribution.  The excess should be reported on the 2018 5329 form that will add a 6% penalty on the $150 - $9.

You should take a regular distribution of the $150 before the 2019 Apr. 15 due date to avoid a 2nd 2019 penalty that will repeat every year until removed.

[dmertz]

The deadline for correcting the excess and avoiding another 6% penalty for 2019 by obtaining a regular distribution of the $150 from 2018 was December 31, 2019, not April 15, 2020.

Are you eligible to contribute to a traditional IRA for 2019?

Have you already contributed the maximum for 2019?

[macuser_22]

Thanks for catching that. It is already too late for 2019 so there will be another 2019 6% penalty.   You need to remove it before the end of 2020 or apply it to a 2020 contribution, if eligible, to avoid another 2020 penalty.

[sandorbatyi]

Yes, I am eligible to contribute up to $7,000 for 2019, but I already deposited all the extra cash I had in 2018 ($6,450). So, in 2019 I only contributed $1,400 and have no plans to add any more for 2019.

Sorry, let me clarify:

"Are you eligible to contribute to a traditional IRA for 2019?"

- Yes!

"Have you already contributed the maximum for 2019?"

- No, I only contributed $1,400 for 2019, and any other contributions I make will be for 2020+. I try to keep my annual contributions simple (January 1 to the end of that same tax year).

[dmertz]

In that case you can apply the $150 excess from 2018 as part of your contribution for 2019, eliminating the excess for 2019 and avoiding any excess contribution penalty for 2019.  No need to obtain any distribution.

[sandorbatyi]

So I can claim $1,250 on my 2019 taxes, instead of the full actual contribution of $1,400, and be done with it? I'm no tax expert, but this is what I was hoping to do before asking on this forum.

[dmertz]

If I understand correctly, your new contributions for 2019 are $1,400 to date, not including the $150 excess from 2018.  Your contribution for 2019 will then be $1,400 + $150 = $1,550.

[sandorbatyi]

Yes, in 2019 I have only added $1400 to my IRA. So when doing my 2019 taxes, I should claim a $1550 total contribution, instead of $1,250?

[dmertz · Accepted solution]

In TurboTax:

• On the Tell Us How Much You Contributed page, indicate $1,400 for Your total 2019 traditional IRA contributions.
• Answer Yes to "Any Excess Contributions Before 2019?"
• Enter or confirm $150 as Your Prior Year Excess IRA Contribution.
• Answer No to Excess Contributions Withdrawn
• On the How Much Excess to 2019 page, indicate $150 as Excess Credit to 2019 Traditional IRA Contribution.