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ae7943
Level 2

Roth IRA earnings on late excess contribution: taxable in which year?

I made a late contribution to a Roth IRA in February 2018 for tax year 2017. Because this contribution is in excess, I now need to withdraw it. However, because I made the contribution in calendar year 2018, I am not entirely clear in which tax year the earnings on excess contribution will be taxable. Publication 590-A (2019) says:

 

How to treat withdrawn interest or other income.

You must include in your gross income the interest or other income that was earned on the excess contribution. Report it on your return for the year in which the excess contribution was made.

 

Since contribution was made *in* 2018 but *for* 2017, which tax year should I amend ? If it is consistent with 5329 form regarding the 6% excise tax, where line 23 says I need to report the excess contribution for 2017, then I am guessing that amending tax return 2017 for the earnings in this case is also the correct answer, but he language of the publication above seems vague to me and open to both interpretations. 

 

Thanks for any clarifications.

 

 

 

 

 

 

 

 

1 Best answer

Accepted Solutions
macuser_22
Level 15

Roth IRA earnings on late excess contribution: taxable in which year?

None actually for a 2017 excess contribution not removed.

 

That quote from Pub 590A is in the section "Excess Contributions Withdrawn by Due Date of Return" which for a 2017 contribution was April 15, 2018.    Since you did not and the excess is still there then the 6% penalty applies to 2017 AND again in each year that the excess remains (2018, 2019).    There will be no 2020 penalty if the excess is removed as a normal distribution before the end of 2020.   You need to file a 2017, 2018 and 2019 5329 form for each year showing the excess and pay the 6% penalty.

 

Any earnings attributed to the excess remain in the IRA and do not need to be withdrawn because the 6% penalty must be paid.   Removing and paying tax in the earnings only applies when the excess was timely removed before the due date of the tax return of the tax year that the excess was for.

 

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

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2 Replies
macuser_22
Level 15

Roth IRA earnings on late excess contribution: taxable in which year?

None actually for a 2017 excess contribution not removed.

 

That quote from Pub 590A is in the section "Excess Contributions Withdrawn by Due Date of Return" which for a 2017 contribution was April 15, 2018.    Since you did not and the excess is still there then the 6% penalty applies to 2017 AND again in each year that the excess remains (2018, 2019).    There will be no 2020 penalty if the excess is removed as a normal distribution before the end of 2020.   You need to file a 2017, 2018 and 2019 5329 form for each year showing the excess and pay the 6% penalty.

 

Any earnings attributed to the excess remain in the IRA and do not need to be withdrawn because the 6% penalty must be paid.   Removing and paying tax in the earnings only applies when the excess was timely removed before the due date of the tax return of the tax year that the excess was for.

 

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

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ae7943
Level 2

Roth IRA earnings on late excess contribution: taxable in which year?

@macuser_22 Very clear and helpful answer, thank you! 

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