Request Help for 2018 Roth IRA Excess Contribution Aftermath

[Aero751]

Hi,

We made maximum contributions of $6500 to each of our Roth IRAs in 2018.  When preparing taxes in 2019, I learned our AGI reduced our maximum allowed contributions.  TurboTax indicated we each had an excess contribution of $480.  I had the $480 plus earnings ($33 and $27) removed from each IRA prior to the April 15, 2019 deadline.  This resulted in 2018 Roth IRA contributions of $5987 and $5993 which matched the limits on Line 16 of the Roth IRA Limit Worksheet.

I am now amending my 2018 return to pay the taxes on the interest earned from the excess contributions using the 2019 1099-Rs I received this year for these transactions.  They are dated 2019 and have codes J and P in Box 7.  After entering the information for each account, the Roth IRA Limit Worksheet has computed a new limit of only $5980.  As a result, the Forms 5329 report excess contributions of $7 and $13, respectively with the additional 6% tax assessed.

If I've done all this properly, it appears the $60 earned on the original excess contributions increased our AGI and further limited our allowable contribution limit.

I'd appreciate your advice on how to deal with the new excess contributions ($7 and $13) in my 2019 tax return and break out of this endless loop!  Thanks in advance for your help.

Larry

[Critter]

Ok ...  since you already corrected the excess contributions on the ORIGINAL  2018 return then the form with the code P can be ignored.   Do NOT amend the 2018 return ... as you see it will not work. 

Now for the earnings ... they are reported on the 2019 return since they were taken out in 2019 ... simply enter the 1099-R as printed. 

[dmertz]

You have discovered the difficulty in determining the amount required to be returned when you are in the phase-out range of the Roth IRA contribution limit.  So yes, you indeed have excess contributions of $7 and $13 (I assume for you and your spouse since to indicated two separate amounts) still subject to penalty on your 2018 tax return and carried into 2019.

You'll need to make sure that 2019 TurboTax shows the $7 and $13 excess contributions carried into 2019 and not some other amount.  If either of you is able to apply the $7 or $13 excess as part of the particular individual's 2019 Roth IRA contribution, that will eliminate the excess for 2019.  Otherwise you'll each have 6% excess contribution penalties on the $7 and $13 again for 2019.  (The penalty on $7 rounds to $0 and the penalty on $13 rounds to $1.)  With the $7 and $13 penalties carried into 2020, you'll either have to apply these as part of your 2020 Roth IRA contributions or obtain regular distributions of $7 and $13, respectively to eliminate the excess for 2020.