How to enter my dependent's (my daughter) ROTH IRA information? (on 5329 form)

[kaitech3]

I have an issue with excess contribution to ROTH IRA for previous years 2020,2021,2022 and 2023. It is my daughter's ROTH IRA. She is a dependent under my wife and my tax return.  I got the answers for what need to changes and files. Amending  2020,2021,2022 1040X with 5329 form and penalty check. 

But I still can NOT use turbo tax desktop to add my daughter's ROTH IRA information to 5329 form.  

I was advised to click the form format and search for 5329. It comes out two links. One 5329 form is under my name and SSN and the other is under my wife's name. There is no blank 5329 form that I can enter my daughter's info. 

Any suggestions how to do that? ( I guess both amend previous year 2020,2021,2022 and current 2023 have the same issue).

Thanks in advance.

SC.

[fanfare]

If your daughter has a Roth IRA with an excess contribution, the Form 5329 has to have her Name and SSN on it.

If she did not have to file a return, Form 5329 can be filed separately.

You can get the needed forms 5329 for those years in fillable PDF format at IRS website.

"If you're filing [...] for a minor child who cannot sign the return, sign the child's name followed by the word "by," then your signature, and your relationship, such as "parent" or "guardian for minor child." (IRS)

I don't see in Instructions where to mail it. I assume it is the same address she would use for Form 1040.

@kaitech3 

[kaitech3]

Thanks for the advice.

I do have all the previous years' 5329 form. It is easy to fill it up manually.  I believe IRS still need me to file the 1040X for those years I guess.  That's why I have to use Turbo Tax software.  (My daughter is filed tax with my wife and I. She is a dependent.)  I just frustrated that Turbo tax won't let me enter her Roth IRA info (at least I couldn't find a way to do that.)

[fanfare]

when your daughter is listed as a dependent, that's not her tax return.

Did she file her own Form 1040 for any of those years, or not ?

@kaitech3 

[kaitech3]

No, she did not file her own tax. She was a minor for year 2020, 2021, 2022. And She is 18 yrs old 2023 and 19 yrs old 2024.  She is a student and does not have any income. 

In that case, should I enter under my name for her excess Roth IRA contribution on form 5329?  Does that make sense? I am really puzzled. 

[kaitech3]

She always listed as our dependent on our tax return 

[fanfare]

You don't amend your tax return to resolve her issues.

When she signs her Forms 5329, or you sign for her, 1040-X is not needed.

On your  check of payment of penalty, write "for <her name>", her SSN and tax year on the check.

@kaitech3 

[fanfare]

Form 5329 should have her name and address.

Since she is not a minor she can sign all the forms.

Maybe you should have her fill out the forms so she learns something about excess contributions.

@kaitech3 

[kaitech3]

Thanks a million. You save my life.  

Still some follow up questions:

In my daughter's case: 2020, 2021, 2022, 2023 : each year $1000 Roth contribution.

We requested removal of all the excess contributions last week. I hope it will be done by April 15 2024.

1)   Can we still keep the earning in the roth ira account?  (I read another case from bogleheads.org) It is a little bit confusing.  

2)  I am clear on how to fill up the 5329 form for 2020, 2021 and 2022.

    For year 2023 and 2024 5329 form, I am a little confused. 

    Since we removed the excess contribution before April 15 2024,

here are my calculations:

-----------------------------------------------------------------------------------------------------------------------------

5329 form for 2023. 

   line 18:  3000   ( those are carryover from 2020, 2021, 2022)

   line 20:  1000   ( we contribute $1000 for 2023, but removed it in April 2024. A little bit confuse. )

   line 21:  1000  (add line 19 and line 20)

   line 22:   2000  ( line 18 minus line 21)

   line 23:   1000  ( excess contribution for 2023)

   line 24:   3000   

   line 25:     180 ( 6% x 3000 penalty)

   -------------------------------------------------------------------------------------------------

  Form 5329 (year 2024)

   line 18:  3000   ( those are carryover from 2020, 2021, 2022)

   line 20:  3000   (  removed it in April 2024.  )

   line 21:  3000  (add line 19 and line 20)

   line 22:   0  ( line 18 minus line 21)

   line 23:   0  ( excess contribution for 2024)

   line 24:   0   

   line 25:   0 ( 6% x 3000 penalty)

   -------------------------------------------------------------------------------------------------

[fanfare]

You removed the excess in 2024. Since you are asking about earnings, I assume her Roth IRA has not gone to a zero balance yet. If the balance is zero, the earnings must have been zero.

your situation is again more complex because contributions were made for 2023, and the due date for 2023 has not arrived yet.

when the excess is removed after the due date of the return (including extensions) the earnings are not removed.

when the excess is removed before the due date, the earning have to be calculated by the custodian and removed also. 

Maybe you will luck out and there were no positive earnings on the 2023 contribution. in that case it doesn't matter at all.

you can confirm this with the custodian.

In any case, you can ignore this complication since she is not filing 1040. 

2023 Form 5329 treatment is a continuation of 2020-2022.

2024 Form 5329 cannot be prepared now, it does not exist.  You have to wait until next year for that.

@kaitech3 

--

[fanfare]

Line 20 must be zero until you get to the 2024 form. (previously I said 2023, that was incorrect)

that is the year you distributed any excess and that is the year that resolves the issue

that's also the reason the penalty is cumulative and rises each year. Each year adds more excess.

@kaitech3 

[kaitech3]

It is better for us to request extension for 2023 tax filing so that we have more time to deal with the situation. 

The removal of 2023 Roth contribution before the tax extension (oct 2024), therefore I think 2023's contribution will not have the 6% penalty, is that correct? Of course, we still need to pay the 2020-2022's excess contribution since the removal occurred in April 2024. 

There are earnings from 2020-2023's contribution. We sold the stocks in April 2024 and now there are all in cash.  I am not sure how the broker handles this. The excess Roth IRA removal form does not says whether it will just remove the original contribution amount or including the earning.  If it need another request that removal all the earning at once in 2024,  that might be more easy to calculate. It is just a net number that combines all the earning from 2020-2023 and pay 10% penalty, is that right? It is complicated.

[fanfare]

maybe my replies are too obscure but I don't think you are reading them carefully.

I hope it's clear that this situation has nothing to do with your tax return. you don't need an extension.

If your daughter does not intend to file 2023 form1040, there's no reason for her to request an extension of time, and even if she does file Form 4868, without a payment it is no help if for any reason it turns out tax is due.

Since you are not familiar with the required forms for requesting custodian actions, nor what actions to request, you still don't know exactly how custodian will issue the 2024 1099-R.

Even if you ask them now, the customer rep may give you incorrect information.

"The excess Roth IRA removal form does not says whether it will just remove the original contribution amount or including the earning."

It does give you this option. check the form again.

@kaitech3 

[kaitech3]

Again thanks a lot for the advice.

We request the removal of access contribution last Friday. The broker is Schwab. They told us it takes about 2-4 days to complete.  I read the Schwab request form again. It says it will remove the excess contribution and it will calculate the earnings.  (Two separate boxes that I have checked.)  So I guess by next Friday April 12 , I may be able to see what is removed from the account. 

If they did not remove the earnings, I will make another request to remove the earning too. In that case, I guess it may pass the deadline for regular filing April 15, 2024.  That's my original thoughts.

My daughter is a college student.  She will still be our dependent for 2023. For 2024 year tax filings, I am not sure at this time. If she find a summer intern or work part time, she may be able to file her own tax for 2024 but I am not sure at this time. 

From every year 5498 form, I know from 2020-2023 up to now, Only year 2022 is a down year (negative earning). All the other year are positive earning.

I think you are right. We can still file the regular deadline.  Even the earning distribution after April 15 2024, it will still shows 2024 distribution on 1099-R. We will pay 10% penalty no matter what (before or after April 15).  

This contribution thing really caught me in surprise. I use Turbotax for many years and it never warns me.  If I know it cause so much trouble, we will never contribute to Roth. What a headache. 

Again thanks for your time and effect to help us. I really appreciate that. 

[fanfare]

You're right, there is no penalty on the 2023 contribution of $1,000 if you remove the excess before the due dat of the tax return. (I knew that !?)

you must also remove the earnings. so far it's not clear that the custodian did that for you.

"This treatment only applies if any earnings on the contributions are also withdrawn".

Pub 590-A  (2022 edition) doesn't say what the treatment becomes if you don't meet the condition. If it does, I don't see it.

So for that situation, we are both confused.

--

The penalty for 2020-2022 still applies to 2023 since the excess for those years was not removed in 2023.

The penalty for those years is resolved on 2024 Form 5329.

One approach is to assume condition is met  and set  2023 Form 5329 Line 23 to zero.

She can revisit this  decision in 2025 when you  see the actual 2024 Form 1099-R.

At that time, she may decide there is nothing to do.

@kaitech3