Traditional IRA Excess Contribution

[asonganyiz]

Hello,

While using turbotax, I got a notification that I contributed excess to my retirement accounts.. by an amount over $2000  and I was told to complete the return of excess contributions. I forgot to do this in April and just realized that. What do I need to do and what are the implications? 

Thanks 

[macuser_22]

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@asonganyiz wrote:

Hello,

While using turbotax, I got a notification that I contributed excess to my retirement accounts.. by an amount over $2000  and I was told to complete the return of excess contributions. I forgot to do this in April and just realized that. What do I need to do and what are the implications? 

Thanks 

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Assuming you mean an IRA and not an employer account like a 401(k) then:

If this was a 2020 excess then you have until the extended due date to remove it as a "return of contribution" without penalty if you filed for an extension before May 17 or if you filed your tax return before May 17, which is an automatic extension.    The financial institution will issue a 1099-R with a box 7 code for a return of contribution and not a normal distribution.

Per IRS instructions in Pub 590B https://www.irs.gov/publications/p590a#en_US_2020_publink1000231027

If you timely filed your 2020 tax return without withdrawing a contribution that you made in 2020, you can still have the contribution returned to you within 6 months of the due date of your 2020 tax return, excluding extensions. If you do, file an amended return with "Filed pursuant to section 301.9100-2" written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return.

If not removed by then or you did not file in time or have an extension, then you will owe a 6% penalty that repeats every year until removed with a normal distribution.