Excess Roth IRA Contribution Correction

nrenuga — Sun, 16 Feb 2025 05:31:05 GMT

Excess Roth IRA Problem

$1336 Excess Contributed to 2020 Roth IRA

$6000 Excess Contributed to 2021 Roth IRA

When Preparing the Tax filing for 2021 in March 2022 realized this mistake and we did withdraw and close the Roth IRA account which had balance of $7366 = $7297 + $69.16 (Dividend).

Amended the 2020 Tax Return stating the $1336 is excess contribution for 2020 and paid Penalty ($80) for the same.

When we spoke to TurboTax Agent to file 2021 Tax Return April first week 2022, Got suggestion that closing the account will not solve the issue and asked us to talk to Vanguard to get the correct code. Vanguard opened a new Roth IRA account and added 7297 as rollover contribution and then asked to withdraw that which was done April 2022 before 2021 tax filing deadline.

Now 2022 - 1099-R has 3 Distributions recorded

7366 (Code J ) - Withdrawn and Closed Account
1297 (Code P, J ) - New Account which was created by Vanguard to add Rollover contribution
6000 (Code 8, J ) - New Account which was created by Vanguard to add Rollover contribution

Now got an IRS Notice CP2000 asking to pay tax for 7366 + 6000 = 13366 which is 6k and Interest of $600.

Need some advice how go avoid this 7k payment for a mistake done and corrected.

Re: Excess Roth IRA Contribution Correction

DanaB27 — Fri, 21 Feb 2025 16:36:55 GMT

To clarify, you enter the Form 1099-Rs with code J and codes 8J on your 2022 return? Only the earnings in 2a should have shown as taxable? And Form 1099-R with code PJ belongs on your 2021 return and only the earnings in 2a should have been taxable.

You will need to send an explanation statement of what happened to the IRS. Include supporting documents . Please see Topic no. 652, Notice of underreported income – CP2000 for details. Only the earnings should be taxable.

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Excess Roth IRA Contribution Correction

Re: Excess Roth IRA Contribution Correction