topic Re: 2020 Overcontribution in Retirement tax questions

2020 Overcontribution

Hieb2012 — Mon, 14 Sep 2020 15:04:04 GMT

I accidentally contributed too much to my 2020 IRA this year.

I contributed $7000 to a traditional IRA and $1000 to a Roth IRA. My intent was to contribute $6000 to my traditional IRA but I lost track and contributed too much. The Roth IRA was used in previous years but due to a jump in income in 2019, I wanted to reduce my tax liability as much as possible.

I've since purchased and sold several stocks and am now fully invested in stocks.

What do I need to do to rectify this situation?

I know that I must sell off at least $1000 worth of securities in each account, but how do I know if I owe interest, penalties, etc. and what do I do to withdraw? I assume an excess contribution form?

Any help is appreciated.

Thank you.

Re: 2020 Overcontribution

macuser_22 — Mon, 14 Sep 2020 15:18:40 GMT

You have until the due date of your 2020 tax return (April 15, 2021) to request a "return of excess contribution" (NOT a regular distribution) from your IRA. The IRA custodian must return the $1,000 excess plus any earnings attributed to the excess. They will issue a 1099-R next January for you to report it on your 2020 tax return. Only any earnings returned will be taxable/

Re: 2020 Overcontribution

Hieb2012 — Mon, 14 Sep 2020 19:33:15 GMT

How do I know what excess earnings are attached to that original $1000?

Re: 2020 Overcontribution

macuser_22 — Mon, 14 Sep 2020 19:48:50 GMT

The returned amount will be in box 1 on the 1099-R that you will receive ans the taxable earnings will be in box 2a. Just enter the 1099-R into TurboTax and TurboTax will do the rest.

Re: 2020 Overcontribution

Critter-3 — Tue, 15 Sep 2020 00:41:16 GMT

@Hieb2012

How do I know what excess earnings are attached to that original $1000?

That is the broker's job ... they will put it on the 1099-R.