Hello looking for some clarification, hopefully.
April of 2020 I created 2 Roth Accts. #1 for $3,000 #2 for $4,000.00 . Then added $3k to my Traditional. Put them all towards 2019 year. First time doing Roth's didn't know my level of contribution was too much.
Then when doing my 2019 taxes I accidently left off the $3K Roth. So the program had me at total for the 2019 year $7K contributions between the 2 IRA's. Fast forward to now doing my taxes for 2020 when I imported from Turbo tax 2019 to 2020 it took me a bit to catch that only $7,000 in the IRA column came over. So as I started looking at my paper files of the numbers I realized I left it off. Then all of a sudden the EXCESS $3,000 contribution appeared. So after researching I realized my mistake. I know I have to pay a 6% penalty because I didn't get it out in time in the 2020 year. That's not the issue.
The issue is I am having trouble with Turbo Tax 2020 and spent almost 3 hours on phone with support who were very nice but problem isn't resolved. In the step by step it asks me how much of my Excess I want to put towards 2021. Well I don't want to put any in this year. But every time I put -0- in the box and I go to the IRA worksheet I get a red flag. Then I go back to step by step and it says I must put $1,000.00 in the box. I was told by a tax advisor on a quick answered phone call I should remove the excess $3k from that Roth to avoid anymore 6% penalty. So I am planning on closing the Roth certificate it is in. But the form 5329 wants to use $1,000.00 credit on line 19. Line 18 does say $3,000
line 21 says $1,000
line 22 says $2,000
line 23 nothing
line 24 $2,000
line 25 $120 penalty.
If I remove the entire excess from the current ROTH certificate. It will be closed and empty. No $1,000 left in it.
Not sure why the tax program is forcing me to keep the $1,000 in.
Maybe I am just misunderstanding the form.
In other documentation on the internet it talks about a Carry Forward of Excess Contributions.
I also opened another Traditional for $6K for 2020 so the program seems to be telling me you can still
have another $1,000 yet to contribute.
you are allowed $1000 Roth for 2020 - that's what's on line 19 ($7K max less $6k contributed to traditional IRA as per IRS instructions for this line). however, line 20 needs to be $3,000 your actual withdrawal again per IRS instructions. line 21 is going to look strange because it will be $4K. what's important is that lines 22,23, 24 and 25 will be zero.
link to 5329 instructions.
https://www.irs.gov/pub/irs-pdf/i5329.pdf
what your showing us would indicate that line 20 the amount you removed is $0. so what you get is you have a $3,000 excess from 2019 reduced by the $1,000 allowable for 2020 leaving an excess of $2,000 and a penalty of $120 for 2020. somewhere you should have been asked about the amount removed (line 20).
not only do you have to remove at least $2,000 of the excess but also the income earned on whatever excess you remove. that's taxable in 2020. but you won't get a tax form til 2022
you are not required to keep in any of the excess. just a poorly designed form and instructions. it would have been better if the instructions for line 19 read the amount of prior year excess contributions you elect to treat as a 2020 contribution. (you would enter $0 for line 19. line 20 would be the $3,000. line 21 would be $3,000 (the most logical number) and the rest would all be $0
Thanks I will look at it again and make sure I put in the $3,000 that I will be taking out of the Roth. I did for line 19 in the Step by Step say zero (I didn't want anything in the Roth leftover) No contributions. I keep getting a flag on the IRA worksheet and then when I go back to step by step its SAYS I must put in at least $1,000.00. I was on phone with Turbo tax for three hours. Lead person could not override their system to change it for me.
I read on other platforms that this issue might be a bug. But I will try your other suggestion to see if it changes my line items on the 5329. thank you
another question then Mike9241. The excess contribution has not happened yet. So if I put in the $3k for line 20 it does take everything to zero like you said. But don't I owe the 6% penalty now. As it was never paid yet. I missed the withdrawl deadline in 2020 so I know I owe at least 1 year of it. Thanks
another question then Mike9241. The excess contribution return has not happened yet. So if I put in the $3k for line 20 it does take everything to zero like you said. But then it appears don't I owe the 6% penalty now. As I never paid yet any penalty. I missed the withdrawl deadline in 2020 so I know I owe at least 1 year of it. So if those lines go to zero then how do I pay the penalty. Thanks
I want to go back the beginning here because I want to clarify some things.
Did you amend your 2019 return yet?
Did you make contributions to either the traditional or Roth IRA that were directed to tax year 2020 (either in 2020 or 2021)?
Did not see this message till now. Sorry.
No I did not amend officially yet. Opened up the tax program to see what I had to do.
Yes to contribution of $6K to a traditional for 2020. (did Traditional in march of 2021 for 2020). Nothing added to Roth's for 2020.
@Becky1922 wrote:
Did not see this message till now. Sorry.
No I did not amend officially yet. Opened up the tax program to see what I had to do.
Yes to contribution of $6K to a traditional for 2020. (did Traditional in march of 2021 for 2020). Nothing added to Roth's for 2020.
One other thing, are you age 55 or older?
If not, your tax history should show a $1000 excess for 2019, but your excess really will be $4000 once you amend 2019.
Yes 55 when I opened them. So it is a $3,000 excess. $7,000 total in Roth for 2019 an $3,000 in a Trad. 2019.
So the total was 10K so $3,000 in excess
@Becky1922 wrote:
Yes 55 when I opened them. So it is a $3,000 excess. $7,000 total in Roth for 2019 an $3,000 in a Trad. 2019.
So the total was 10K so $3,000 in excess
I should have said age 50 or older. But you have to be age 50 or older before Dec 31, 2019, to contribute $7000 for the 2019 year, even if you make the contributions in 2020. (In other words, if you turned 50 on January 15, 2020, and you made a contribution for 2019 in February, your limit is still $6000, not $7000.). I'm puzzled as to why Turbotax is identifying a $1000 excess.
I'm also not clear on why you keep opening new IRA accounts instead of adding to your existing accounts. Your $7000 limit is overall, not per account. It's your investment choice I guess.
Yes fit the criteria of 50 or older as of 12-31-2019.
I chose to open a new traditional with a different credit union instead of the old credit union out of my state.
I know I cannot contribute to both unless it is under the $7k.
So for 2020 I did open the $6k Trad and the tax program is allowing me the credit difference of $1K from
the excess contribution towards my 2020 limit. I spent three hours on phone with Turbo tax because the step by step was forcing me to put in the $1,000. I could not put in zero for what I wanted to contribute for 2020 to the Roth. I read in some places it is a bug in the software. But when I went to forms and pulled up the 5329 I was able to put in any numbers I wanted.
I now have the problem that I don't know what year I am paying my 6% penalty on the excess. Originally I was going to pull out the entire $3,000 excess and earnings before paying another year in 2020. I still owe for the 2019 year. But the program was saying 1,000 credit and only $2K over excess, with a $120 penalty in line 25 of 5329.
So on the first response above I played with the numbers in lines 19-24 above and now it shows no penalty.
This is what I think is going to happen.
For 2019 you need to file an amended return to report the $3000 excess and pay the penalty, that's done with.
For 2020, you made a $6000 contribution in March of 2021. I would call the IRA trustee and see if you can reverse that contribution. If you can reverse the 2020 contribution, then you will consider that your $3000 excess from 2019 is now applied toward your 2020 limit. You can then make a new contribution of $4000 to a traditional or Roth IRA for 2020, as long as you make it by May 17. Then when filing Turbotax, you would report your 2020 contribution ($4000) and the program will allow you to apply your $3000 excess to your 2020 limit, and you won't be charged any further penalties. Then you can contribute a full $7000 toward 2021, in any combination of Roth and traditional IRA.
Option 2 would be the following.
Amend 2019 and pay the penalty. File as-is for 2020. $1000 of your 2019 excess is applied to your 2020 limit, and you will be charged a 6% penalty on the remaining $2000 excess. (This may still be less than your investment growth for last year.). Then for 2021, only contribute $5000. When you file your 2021 tax return, the remaining $2000 excess will be applied against your 2021 limit and you won't owe any further penalties.
You may be considering option 3, which would be to close the Roth IRA. I don't think that helps you, because you can't withdraw the 2019 excess as an excess from the Roth in 2021, all you can do is close the Roth account in 2021. You might avoid the 6% penalty on $2000 on your 2020 tax return (I'm not sure on this), but you will pay income tax on the Roth earnings, plus a 10% penalty if you are under age 59-1/2, plus you lose the long-term tax-free investment opportunity. So I wouldn't do this, eating the extra 6% on your 2020 return is probably less damaging than closing the Roth IRA in the long run.
@Becky1922 wrote:
So on the first response above I played with the numbers in lines 19-24 above and now it shows no penalty.
I don't know what you did, but if you were playing around with closing the Roth account, you need to know that on your 2021 tax return (next year) you will pay income tax on the earnings portion of the distribution, because you can only withdraw Roth earnings tax-free if the Roth account was open at least 5 years (or parts of 5 tax years). You will also pay a 10% early withdrawal penalty if you are under age 59-1/2.