topic Re: Roth IRA excess contribution in Retirement tax questions

Roth IRA excess contribution

bigTX — Fri, 03 Jul 2020 12:54:48 GMT

Hello-I would really appreciate some clarification on how to handle my situation.

I made an excess contribution of $960 to a Roth IRA in 2017 and didn't catch it.

The excess contribution sat in that account for 2018 and 2019. Didn't realize the excess contribution until June 2020 and now I realize I have to pay penalties for the excess contribution.

So far I have completed a new 1040X for 2017 and a 5329 (with payment of $58 for the 6% penalty)

Completed a 1040X for 2018 and a 5329(with payment of $58 for the 6% penalty)

My next question is: I already filed my 2019 taxes. Do I need to send in a 5329 (with check) to address the fact that I did not remove the excess contribution during the calendar year of 2019? I will remove the excess amount before the end of 2020.

Also, I have read conflicting information regarding the amount of funds to remove: I read that you need to remove the excess contribution in addition to any gains/losses that contribution has made in the account. But, I have also read that if an excess contribution has been sitting in a Roth IRA and was not corrected in a "timely manner"(in my case not withdrawn by April 15th 2018 or by the extended October 15, 2018 deadline) then I only need to remove the excess contribution and any gains can remain in the Roth IRA.

Thank you for reading this really long post & I appreciate your help!

Re: Roth IRA excess contribution

macuser_22 — Fri, 03 Jul 2020 14:23:42 GMT

@bigTX wrote:

Do I need to send in a 5329 (with check) to address the fact that I did not remove the excess contribution during the calendar year of 2019?

..."(in my case not withdrawn by April 15th 2018 or by the extended October 15, 2018 deadline) then I only need to remove the excess contribution and any gains can remain in the Roth IRA.

Yes, you need to file a 2019 5329 (that can be mailed by itself) and pay another 6% penalty for 2019.

Correct. Removing the earnings prevents the 6% penalty but only if removed before the due date. Paying the penalty allows the earnings to remain in the IRA.

Re: Roth IRA excess contribution

bigTX — Fri, 03 Jul 2020 15:16:49 GMT

Thank you for the quick response! Another random question-is it OK for me to withdraw the $960 from the Roth IRA in two separate transactions from the bank? Like, removing $900 one month and then removing the last $60 another month? I assume I would get 2 separate 1099-R forms but as long as they add up to the excess contribution I should be ok?

Re: Roth IRA excess contribution

macuser_22 — Fri, 03 Jul 2020 15:19:56 GMT

Sure you can. You should only receive a single 1099-R that shows the total distribution for the year next January.

Re: Roth IRA excess contribution

bigTX — Fri, 03 Jul 2020 15:29:26 GMT

Awesome, thank you so much for your help!

Re: Roth IRA excess contribution

fanfare — Sat, 04 Jul 2020 03:58:13 GMT

The rule that you can leave the earnings from an excess contribution in a Roth after waiting a year is weird but true.