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Roth IRA - Multi-year Excess Contributions

Part 1 - 2021 Tax Year
My wife and I got married in late 2021 and we decided to file our 2021 taxes jointly. We were both contributing to individual IRA's. In 2021 and 2022, I contributed $6K to my Traditional IRA and back-door converted that to a Roth IRA given my Adjusted Gross Income (AGI). My wife contributed $6K in 2021 and $1K in 2022 directly to her Roth IRA (Account #1), but our combined AGI exceeded the Roth IRA contribution limits. We realized this while filing our 2021 taxes and figured out that she should not have been contributing directly to her Roth IRA for 2021 or 2022. As a result, we decided to withdraw my wife's direct Roth IRA contributions plus earnings/losses for 2021 and 2022 before the 2021 tax deadline in mid-April 2022. We then contributed $6K to her Traditional IRA for 2021 and 2022 and back-door converted that amount to her Roth IRA before the 2021 tax deadline. We received four 1099-R's in 2022. One for my wife's 2021 excess contributions plus earnings of $6,336. Another for my wife's 2022 excess contributions plus losses of $802. The third 1099-R was for my wife's Traditional IRA to Roth IRA back-door conversion for an amount of $11,975 ($25 less than $12K due to an investment account transfer fee). The fourth was for my Traditional IRA to Roth IRA back-door conversion for an amount of $6K. I assume each of these should be reflected only in our 2022 tax return? How do I properly record this in TurboTax? What should the final tax return look like to validate that I record this correctly?
Part 2 - 2022 Tax Year
While filing our 2022 taxes (jointly) this year, we realized my wife had an additional Roth IRA (Account #2) that she started in 2017. She mistakenly thought this was an investment / brokerage account.  In 2017, 2018, and 2019 she filed her taxes as single and had an AGI that allowed her to contributed directly to the Roth IRA. She did not contribute more than the IRS limit in any of these years either. However, we identified that she made excess contributions of $3475 in 2020, $4475 in 2021, and $650 in 2022. We withdrew the $650 plus losses in 2023 before the mid-April 2023 tax deadline. We withdrew $3475 plus gains (2020 excess) and $4475 plus losses (2021 excess) last month (July 2023). We're expecting 2023 1099-R forms in 2024 for each of these distributions. What is the sequence of steps to properly correct this? It's my understanding that we need to amend my wife's 2020 tax return and our joint 2021 tax return with Form 5329 to pay a 6% penalty. I also need to account for this in the 2022 tax return which hasn't been filed yet. We filed an extension for our 2022 taxes to mid-October. Also, there's a good chance that my wife didn't disclose this additional IRA account in her tax returns for 2017-2020. Do those tax returns need to be amended as well?
3 Replies

Roth IRA - Multi-year Excess Contributions

"we identified that she made excess contributions of $3475 in 2020, $4475 in 2021, "


return of excess contribution:


after tax due date including extensions: you distribute the excess amount being carried forward on Form 5329,
(or offset it with currently allowed contribution) .

Any allocable earnings stay in the Roth account.



Roth IRA - Multi-year Excess Contributions

For those years, 2020 and 2021, you would have to file amended returns respectively adding Form 5329.



Roth IRA - Multi-year Excess Contributions

 "We withdrew $3475 plus gains (2020 excess) .. in May"


This is incorrect procedure, after tax return due date, allocable earnings stay in the Roth.

Custodian should not have allowed it if you used the correct forms.




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