Roth IRA Absorption Strategy with no earned income

chrisinsf — Tue, 19 Oct 2021 15:34:14 GMT

I over-contributed to a Roth IRA based on income limits in 2016/2017 (5 years ago).

It's too late to correct the excess with a "corrective distribution" or "dollar limited distribution". Therefore I have to either withdraw or "distribute" the whole amount of the excess, or "absorb" part or all of the excess with the current year contribution limit available to me.

I'm not presently working, and therefore have no earned income.

Is Absorption available as a strategy to fix the excess contribution if I have no earned income?

Re: Roth IRA Absorption Strategy with no earned income

macuser_22 — Tue, 19 Oct 2021 15:52:34 GMT

You must have taxable compensation from working to make any IRA contribution. It is too late have a return of contribution. All you can do is remove the excess with a normal distribution.

You do realize don't you that you have to file a 5329 for 2016 and pay the 6% penalty that repeats every year that the excess is in the IRA. That means that you must also file a 5329 for 2017, 2018, 2019 and 2020 with the same 6% penalty for 2016 excess. You must doe the same thing for the 2017 excess staring in 2017.

Unless the excess is remove by Dec 31, 2021 they will have another 2021 6% penalty for each. You will need a 2021 1099-R showing the distribution of the excess.

You must report the excess for each year on the correct 5329 for for that tax year.

You can obtain the past years 5329 forms here:

https://apps.irs.gov/app/picklist/list/priorFormPublication.html

Enter "5329" in the find box.

topic Roth IRA Absorption Strategy with no earned income in Investing

Roth IRA Absorption Strategy with no earned income

Re: Roth IRA Absorption Strategy with no earned income