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MasterDexi
Returning Member

Withdrawal of carry over Roth IRA excess before tax deadline

(A previous version of this question was marked as spam, perhaps because I edited it a couple of times to add info, sorry!)

 

When filing my tax returns this year (for 2020), I noticed that my $6000 Roth IRA contribution for 2019 was in excess of what was allowed (and I submitted an amended 2019 tax return and paid the 6% penalty).

 

Now for 2020, I am wondering if I can withdraw this 2019 excess contribution as distributions before the 2020 tax filing deadline (i.e. 4/15/2021) to avoid the excess contribution penalty. I know that if the excess contribution was made in 2020, I can withdraw the excess + generated interest and avoid an excess contribution. But my specific question is if I can withdraw the 2019 excess contribution if the distribution is before the 2020 tax deadline. And if yes, is the procedure for reporting this withdrawal the same as for the 2020 excess (i.e. reporting it as a 1099R even if the 1099R is not received yet)?

 

Reading the tax forms it seems like that the answer might be no, the excess removal grace period (until the tax due date) is only for excess contributions of the tax year in question and not carryovers from previous years. Is this true?

 

I should add that my 2020 Roth IRA contribution limit is 0. So this means that I cannot use my 2020 contribution limit to account for the 2019 excess.

1 Best answer

Accepted Solutions
dmertz
Level 15

Withdrawal of carry over Roth IRA excess before tax deadline

Here's the response I was typing when the flagging happened.  (I happened to capture it when I saw that something was happening to your original post.):

 

Assuming that you are not eligible to treat this excess as a contribution for 2020, there is no way to avoid an additional 6% penalty for 2020.  If you are also unable to treat this excess as a contribution for 2021, correcting this excess contribution after the due date of your 2019 tax return requires you to take a regular distribution of exactly the amount of the excess (with no adjustment for investment gain or loss) before the end of 2021.  Your 2021 tax return will include Form 5329 Part IV to show that the excess has been removed for 2021 and beyond.

 

If you were eligible to contribute to a Roth IRA for 2020 and did so, you could obtain a return of contribution of that contribution made for 2020 to make room to apply as a 2020 contribution some or all of the excess carried in from 2019.  None of the excess itself is permitted to be removed by a return of contribution before the due date of your 2020 tax return.

View solution in original post

2 Replies
macuser_22
Level 15

Withdrawal of carry over Roth IRA excess before tax deadline

Sorry but the 2019 excess that carried to 2020 because it was not removed, HAD to be removed prior to Dec 31, 2020 to avoid another 2020 6% penalty.     (The Apr 15 due date only applies to new 2020 contributions, not to carry-over prior year contributions that were not timely removed).      You will owe a 6% 2020 penalty on that excess.

**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.**
dmertz
Level 15

Withdrawal of carry over Roth IRA excess before tax deadline

Here's the response I was typing when the flagging happened.  (I happened to capture it when I saw that something was happening to your original post.):

 

Assuming that you are not eligible to treat this excess as a contribution for 2020, there is no way to avoid an additional 6% penalty for 2020.  If you are also unable to treat this excess as a contribution for 2021, correcting this excess contribution after the due date of your 2019 tax return requires you to take a regular distribution of exactly the amount of the excess (with no adjustment for investment gain or loss) before the end of 2021.  Your 2021 tax return will include Form 5329 Part IV to show that the excess has been removed for 2021 and beyond.

 

If you were eligible to contribute to a Roth IRA for 2020 and did so, you could obtain a return of contribution of that contribution made for 2020 to make room to apply as a 2020 contribution some or all of the excess carried in from 2019.  None of the excess itself is permitted to be removed by a return of contribution before the due date of your 2020 tax return.

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