Roth IRA: is it possible to put back any withdrawn earnings on an excess contribution and pay the excise tax instead?

[ae7943]

While filing my 2019 taxes this year, I discovered I had made an excess contribution for 2019, so I had the excess contribution withdrawn along with the earnings on it, in order to avoid the 6% excise tax. However, upon further calculations, the tax I would have to pay on the earnings, plus the 10% early withdrawal penalty, all add up to an additional tax that is on the order of 6% excise tax I had left the excess contribution there, but without having the future benefit of leaving the earnings in the Roth IRA account . So, it seems that it would have been more advantageous that I withdraw only the original contribution later instead (after October 15) and file 5329 form for the excise tax, leaving the earnings into the Roth IRA account. And it would have the added simplicity of not having to file federal and state amended returns.

So my question is whether it is possible to do reverse this withdrawal, i.e. have the earnings on the excess put back in the Roth IRA account, either along with the contribution or by itself, and then file the 5329 form for 2019.

[macuser_22 · Accepted solution]

No, You cannot undo what was already done and reverse it.  A return of excess contribution distribution is not eligible for a rollover since it should not have been in the IRA in the first place and I am sure it is beyond the 60 day window for a rollover anyway.

 Some people elect not to withdraw the excess plus earnings as a "Return of contribution" that  produces a 1099-R with a code P on box 7, but rather just remove the excess and not the earnings with a regular distribution with a code J in box 7.    That is not taxable but will produce a 6% penalty on the excess amount but the earnings can stay in the IRA.      If the gain on the earnings is enough, it can pay to just pay the 6% and keep the earnings in the account.

And it does not need to be after Oct 15 - nothing compels you to take a "return of contribution" plus earnings distribution and not a regular distribution at any time.

[ae7943]

Right, I had meant converting a "Return of contribution" with earnings (P) to a regular distribution with 6% penalty (J). Too bad there is no way to do that, but thank you still for a clear and complete answer.