Excess Roth contribution from 2 years ago

[dmcy22]

I'd over-contributed to my Roth IRA in 2017 and paid the 6% excise tax when I filed my 2017 and 2018 taxes. Looking back, I should've corrected this earlier. What are my options now? I haven't filed my 2019 taxes yet.

1. Can I still recharacterize the contribution as a Traditional IRA contribution for 2017? 

2. If not, my understanding is that I can withdraw the excess contribution but leave the earnings in the account. In this case, what would I report in my 2019 taxes?

[dmertz]

1. FAR too late to recharacterize.  The last possible date for doing so was October 15, 2018.

2.  Correct.  Assuming that the excess cannot be applied as part of a Roth contribution for 2018, 2019 or 2020, the excess-contribution for 2020 and beyond can only be eliminated by making a distribution equal to the amount of the excess, with no adjustment for gain or loss.  The distribution will not be taxable because it will be a distribution of your contribution basis.  Except for being able to apply the excess as part of a Roth IRA contribution for 2018 or 2019, nothing can be done now that will eliminate the penalties on this excess for 2018 or 2019.

[dmcy22]

Thanks! You're right in that I'm not eligible to apply the excess as part of a Roth contribution or 2018 or 2019. 

Are these the correct steps then?

1. Withdraw excess contributions from my brokerage (leave any gains in the account)

2. Include the fact that I withdrew the excess in my 2019 tax filing

3. Optional: Contribute to a traditional IRA for 2019  

4. When I receive the 1099-R in January 2021, no need to take action

One other question: Do I need to amend my 2017 tax filing? If so, is the deadline also July 15?

[dmertz]

Regarding 1 though 4, that's correct.  Regarding your 2017 tax return, you said that you've already reported the excess contribution and paid the penalty with your 2017 tax return, so there is nothing to amend.

[dmcy22]

I have a few follow up questions: 

- Where in TurboTax do I report that I withdrew my excess from 2017?

- Since I withdrew the excess before the filing deadline, would I still have to pay the 6% penally for 2019?

[dmertz]

If the regular distribution equal to the amount of the 2017 excess contribution is made in 2020, it will be reportable on your 2020 tax return.

This deadline to remove this excess from your Roth IRA to avoid another 6% penalty for 2019 was December 31, 2019.  The deadline for obtaining a return of contribution before the filing deadline only applies to the tax year for which the excess contribution was made.  In this case the applicable extended filing deadline was October 15, 2018 for the 2017 tax year.