Roth IRA excess contribution

[bigTX]

Hello-I would really appreciate some clarification on how to handle my situation.

I made an excess contribution of $960 to a Roth IRA in 2017 and didn't catch it.

The excess contribution sat in that account for 2018 and 2019.  Didn't realize the excess contribution until June 2020 and now I realize I have to pay penalties for the excess contribution.  

So far I have completed a new 1040X for 2017 and a 5329 (with payment of $58 for the 6% penalty)

Completed a 1040X for 2018 and a 5329(with payment of $58 for the 6% penalty)

My next question is: I already filed my 2019 taxes.  Do I need to send in a 5329 (with check) to address the fact that I did not remove the excess contribution during the calendar year of 2019?   I will remove the excess amount before the end of 2020.

Also, I have read conflicting information regarding the amount of funds to remove:  I read that you need to remove the excess contribution in addition to any gains/losses that contribution has made in the account.  But, I have also read that if an excess contribution has been sitting in a Roth IRA and was not corrected in a "timely manner"(in my case not withdrawn by April 15th 2018 or by the extended October 15, 2018 deadline) then I only need to remove the excess contribution and any gains can remain in the Roth IRA.  

Thank you for reading this really long post & I appreciate your help!

[macuser_22]

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@bigTX wrote:

 Do I need to send in a 5329 (with check) to address the fact that I did not remove the excess contribution during the calendar year of 2019? 

..."(in my case not withdrawn by April 15th 2018 or by the extended October 15, 2018 deadline) then I only need to remove the excess contribution and any gains can remain in the Roth IRA.  

Yes, you need to file a 2019 5329 (that can be mailed by itself) and pay another 6% penalty for 2019.

Correct.   Removing the earnings prevents the 6% penalty but only if removed before the due date.   Paying the penalty allows the earnings to remain in the IRA.

[bigTX]

Thank you for the quick response!  Another random question-is it OK for me to withdraw the $960 from the Roth IRA in two separate transactions from the bank?  Like, removing $900 one month and then removing the last $60 another month?  I assume I would get 2 separate 1099-R forms but as long as they add up to the excess contribution I should be ok?

[macuser_22]

Sure you can.    You should only receive a single 1099-R that shows the total distribution  for the year next January.

[bigTX]

Awesome, thank you so much for your help!

[fanfare]

The rule that you can leave the earnings from an excess contribution in a Roth after waiting a year is weird but true.