topic Excess Roth IRA Contribution in 2020 in Retirement tax questions

Excess Roth IRA Contribution in 2020

colal — Thu, 10 Mar 2022 20:59:26 GMT

I made an excess Roth IRA contribution in 2020. In early 2021 I was able to remove $6,800 + interest prior to the tax deadline. I received my 1099-R in 2022 and now find I should have removed the remaining $200 as I still have an overage showing on my 2020 amended return due to the interest on the $6,800. It is now March 2022. I have already maxed my Roth IRA contribution for 2021 and I am unable to contribute in 2022 because I retired. Any ideas as to how to resolve the issue of the $200 overage for 2020 would be most appreciated. Thanks!

Re: Excess Roth IRA Contribution in 2020

GeorgeM777 — Fri, 11 Mar 2022 04:16:47 GMT

One option, given the dollar amount of the excess, is to just pay the penalty. The excess contribution penalty is equal to 6 percent of the excess amount. The penalty for excess contributions continues every year that you don't correct the excess contribution. In your case, it appears you will owe the 6 percent penalty on $200 for each year the excess remained in the account which appears to be two years.

@colal

Re: Excess Roth IRA Contribution in 2020

colal — Fri, 11 Mar 2022 14:55:32 GMT

Thank you for a reply. I have no problem paying the penalties. But then how do I remove the $200 excess just take a normal distribution of $200 now?

Thanks again!

Re: Excess Roth IRA Contribution in 2020

DanaB27 — Sat, 12 Mar 2022 14:12:27 GMT

Yes, you will remove the $200 (without earnings) as a regular distribution.

You will have to pay the 6% penalty for 2020 and 2021 since the excess wasn't removed by December 31, 2021.

@colal

Re: Excess Roth IRA Contribution in 2020

colal — Sat, 12 Mar 2022 18:40:51 GMT

Thank you so much! OK one last question ..

I amended my 2020 tax return no problem to cover the penalty.

For 2021 return do I make up and add a 1099-R and what would I indicate for the distribution code(s)? I'm trying to figure out how to prompt the addition of a 5329 to this return to pay the penalty ...

Re: Excess Roth IRA Contribution in 2020

RaifH — Sat, 12 Mar 2022 19:27:42 GMT

No, you do not want to make up a 1099-R. You will receive a distribution of the excess contribution in the next year.

To account for the excess contribution and pay the penalty in 2021:

In the Deductions & Credits section of your Federal return, scroll down to Retirement and Investments. Click Show More and click Revisit/Start next to Traditional and Roth IRA Contributions.
Your Roth IRA should already be selected. Click Continue in the Traditional IRA and Roth IRA screen
Answer No to Is this a repayment of a retirement distribution?
Your Roth IRA contributions should already be in there. If not, enter them for 2021.
Answer No to Switch from a Roth to a Traditional IRA?
Answer questions on the next two screens regarding your existing Roth IRA
Enter your excess contributions from prior years. If it is $200 and you maxed out your contribution for this year, you should see your taxes creep up $12
Do not credit the excess to your 2021 contributions.

Re: Excess Roth IRA Contribution in 2020

colal — Sun, 13 Mar 2022 15:41:48 GMT

Thank you! To confirm, now I just need to take a $200 normal distribution (I am over 59-1/2) prior to April 18 deadline? Will there be any follow up tax paperwork for my 2022 taxes, or will this be the end of it 🙂?

Re: Excess Roth IRA Contribution in 2020

DanaB27 — Sun, 13 Mar 2022 16:17:16 GMT

Yes, you will just take a regular $200 regular distribution anytime in 2022 (by December 31, 2022) and you will get a 2022 Form 1099-R next year.

On your 2022 tax return you will enter the 2022 Form 1099-R and make sure to answer all the follow-up questions carefully and enter the net contributions prior to 2022 on the "Enter Prior Year Roth IRA Contributions" screen. The distribution should not be taxable.

@colal