Excess Roth IRA Contribution in 2020

[colal]

I made an excess Roth IRA contribution in 2020.  In early 2021 I was able to remove $6,800 + interest prior to the tax deadline.  I received my 1099-R in 2022 and now find I should have removed the remaining $200 as I still have an overage showing on my 2020 amended return due to the interest on the $6,800.  It is now March 2022.  I have already maxed my Roth IRA contribution for 2021 and I am unable to contribute in 2022 because I retired.  Any ideas as to how to resolve the issue of the $200 overage for 2020 would be most appreciated.  Thanks!

[GeorgeM777]

One option, given the dollar amount of the excess, is to just pay the penalty.  The excess contribution penalty is equal to 6 percent of the excess amount.  The penalty for excess contributions continues every year that you don't correct the excess contribution.  In your case, it appears you will owe the 6 percent penalty on $200 for each year the excess remained in the account which appears to be two years.  

@colal

[colal]

Thank you for a reply.  I have no problem paying the penalties.  But then how do I remove the $200 excess just take a normal distribution of $200 now?

Thanks again!

[DanaB27]

Yes, you will remove the $200 (without earnings) as a regular distribution.

You will have to pay the 6% penalty for 2020 and 2021 since the excess wasn't removed by December 31, 2021.

@colal

[colal]

Thank you so much!  OK one last question ..

I amended my 2020 tax return no problem to cover the penalty.  

For 2021 return do I make up and add a 1099-R and what would I indicate for the distribution code(s)?  I'm trying to figure out how to prompt the addition of a 5329 to this return to pay the penalty ...  

[RaifH]

No, you do not want to make up a 1099-R. You will receive a distribution of the excess contribution in the next year.

To account for the excess contribution and pay the penalty in 2021:

1. In the Deductions & Credits section of your Federal return, scroll down to Retirement and Investments. Click Show More and click Revisit/Start next to Traditional and Roth IRA Contributions.
2. Your Roth IRA  should already be selected. Click Continue in the Traditional IRA and Roth IRA screen
3. Answer No to Is this a repayment of a retirement distribution?
4. Your Roth IRA contributions should already be in there. If not, enter them for 2021.
5. Answer No to Switch from a Roth to a Traditional IRA?
6. Answer questions on the next two screens regarding your existing Roth IRA
7. Enter your excess contributions from prior years. If it is $200 and you maxed out your contribution for this year, you should see your taxes creep up $12
8. Do not credit the excess to your 2021 contributions. 

[colal]

Thank you!  To confirm, now I just need to take a $200 normal distribution (I am over 59-1/2) prior to April 18 deadline?  Will there be any follow up tax paperwork for my 2022 taxes, or will this be the end of it 🙂? 

[DanaB27]

Yes, you will just take a regular $200 regular distribution anytime in 2022 (by December 31, 2022) and you will get a 2022 Form 1099-R next year.

On your 2022 tax return you will enter the 2022 Form 1099-R and make sure to answer all the follow-up questions carefully and enter the net contributions prior to 2022 on the "Enter Prior Year Roth IRA Contributions" screen. The distribution should not be taxable.

@colal