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confused-and-tired
Level 2

Withdrawing 2016 excess roth contribution in 2020 or 2021?

I made an excess roth contribution in 2016. I've paid 6% penalties for 2016, 2017, 2018, and 2019 via a 5329 which I've filed every year.

 

I am finally in a position to withdraw that excess and have received conflicting information about whether I can still withdraw the excess for 2020 and thus avoid the 6% penalty for that year. 1 phone rep at my IRA custodian said it is too late to withdraw for 2020, but another said I can mark the withdrawal for 2020, but I won't receive my 1099-R until next year, and she asked me to talk to a CPA for the tax ramifications of that.

 

I have tried calling a few tax advisors but have trouble reaching anyone and the 1 tax advisor I did reach wasn't actually able to answer my question.

 

Does anyone here know if an excess withdrawal for my 2016 contribution can still be made for 2020 and how that works with not receiving a 1099R until next year?

1 Best answer

Accepted Solutions
dmertz
Level 15

Withdrawing 2016 excess roth contribution in 2020 or 2021?

The first rep is correct.  It's too late to withdraw the excess in 2020.  However, if you are eligible to contribute to a Roth IRA for 2020, you can apply the excess as a 2020 Roth IRA contribution.  The second rep apparently thought that the excess contribution was one you had made for made for 2020, not 2016.

 

Assuming that you are not eligible to contribute to a Roth IRA for 2020, your 2020 tax return must include Form 5329 Part IV reporting the excess and paying the 6% excess contribution for 2020, the same as you have done for 2016 through 2019.

 

Correcting the excess in 2021 requires that you either be eligible to apply the excess as some or all of your 2021 Roth IRA contribution or for you to make a regular distribution of exactly the amount of the excess with no adjustment for any investment gain of loss.  The distribution will be reportable on your 2021 tax return as a nontaxable distribution of contribution basis and on Form 5329 Part IV, eliminating the excess and the penalty for 2021.  (Note that regular distributions are reportable on the tax return for the year in which the distribution is made.  Nothing about this distribution made in 2021 is reportable on your 2020 tax return.)

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2 Replies
dmertz
Level 15

Withdrawing 2016 excess roth contribution in 2020 or 2021?

The first rep is correct.  It's too late to withdraw the excess in 2020.  However, if you are eligible to contribute to a Roth IRA for 2020, you can apply the excess as a 2020 Roth IRA contribution.  The second rep apparently thought that the excess contribution was one you had made for made for 2020, not 2016.

 

Assuming that you are not eligible to contribute to a Roth IRA for 2020, your 2020 tax return must include Form 5329 Part IV reporting the excess and paying the 6% excess contribution for 2020, the same as you have done for 2016 through 2019.

 

Correcting the excess in 2021 requires that you either be eligible to apply the excess as some or all of your 2021 Roth IRA contribution or for you to make a regular distribution of exactly the amount of the excess with no adjustment for any investment gain of loss.  The distribution will be reportable on your 2021 tax return as a nontaxable distribution of contribution basis and on Form 5329 Part IV, eliminating the excess and the penalty for 2021.  (Note that regular distributions are reportable on the tax return for the year in which the distribution is made.  Nothing about this distribution made in 2021 is reportable on your 2020 tax return.)

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confused-and-tired
Level 2

Withdrawing 2016 excess roth contribution in 2020 or 2021?

Thanks for the detailed response dmertz!

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