Excess ROTH IRA contribution for 3 yrs

[Pk841]

For years 2020,2021 and 2022 I have made $6000 for traditional IRA and $6000 for ROTH IRA thinking $6000 limit was for each IRA. Essentially I made an excess contribution of $18,000 for 3 yrs to ROTH IRA and realized it in May 2022. I asked my brokerage to remove the excess of $18,000 and distribute the holdings to a non IRA account. $18,000 invested was worth around $15,600 when they distributed the excess to non retirement account in July 2022.

i got 3 1099- R forms in 2022 and 2 of them had taxable amounts as 0 with distribution codes J, P on one and 8, J on one . Third one said  taxable amount not determined with distribution code J.

To make it worse I missed this form in Jan 2023 and didn't include in my tax filing for 2022

Question is do I do an amended return for 2020,2021 and 2022 ? Or just 2022 amended return is good. How do I pay the penalty for 2020 excess contribution

[fanfare · Accepted solution]

return of excess contribution:

after tax due date including extensions: you distribute the excess amount being carried forward on 5329,
(or offset it with currently allowed contribution) .
An amended return will be needed supplying Form 5329 since there is a 6% penalty per year on excess contributions .
Earnings stay in the Roth account.

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Since you had a loss there are no earnings.

You must amend 2020, 2021 and 2022 to add Form 5329

2020 penalty on $6,000

2021 penalty on $12,000

2022 resolution of $18000 by distribution of entire remaining amount, so there is no penalty.

@Pk841 

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[fanfare · Accepted solution]

reply back if you want more information on how to amend on paper.

@Pk841 

[Pk841]

Thank you @fanfare   ! Very helpful. How about state taxes? I live in NJ and all these excess ROTH contributions were reported as State distributions in 1099-R in 2022. Should I be paying the same 6 % penalty every year for NJ taxes   ? Also would be there be any tax needed to be filed for state distribution?

[fanfare]

there is no tax on return of Roth contribution.

NJ does not have any notion of excess contribution, so, because you had no positive earnings, there is nothing to do.

@Pk841 

[fanfare]

If your spouse took the excess for 2022 before the due date of your 2022 tax return, the procedure is different.

you have to take out the earnings (she did that) and pay tax on that. In 2022 there was also a 10% penalty. she doesn't report any excess so your joint 5329 excess is still  as I described it earlier.

since your income went up, you are supposed to amend your NJ return also.

For a $7 difference, I'd ignore it.

@Pk841 

[Pk841]

@fanfare  Thank you so much. Question on how to report excess contribution to traditional IRA 

In 2022, I made an excess contribution of $6,000 to traditional IRA and removed it after 5 days and Brokerage determined the distribution amount as 6,007. My income and 401k plan doesn't allow me to make deductible contribution to IRA

Got 1099_R from with excess contribution as 6,000 and distribution as 6,007 with taxable income as $7

I'm amending 2022 tax returns now and this is what I'm doing. Please correct if any of the below is wrong

1) Form 5329 Early distribution includible in income $6,007

2) Form 5329  Early distributions included on line 1 that are not subject to the additional tax (see instructions).
Enter the appropriate exception number from the instructions - $6,000 Exception Number 1,8 from form 1099-R  ( are these correct)

3) Form 5329, Amount subject to tax is $7

4) Should I also file a form 8606 to classify my IRA contribution as non deductible 6,000 though it was removed as excess ?

[fanfare]

[removed]

@Pk841 

[fanfare]

Sorry I made a mistake, I forgot you are resolving your excess also.

[fanfare]

if any of the below is wrong  it is wrong

1) Form 5329 Early distribution includible in income $6,007

Line 1 should be $7

2) Form 5329  Early distributions included on line 1 that are not subject to the additional tax (see instructions).

Line 2 should be -0-
Enter the appropriate exception number from the instructions - $6,000 Exception Number 1,8 from form 1099-R  ( are these correct)

The exception code, if any, does not come from 1099-R.

You have no exception, do not enter a number.

3) Form 5329, Amount subject to tax is $7

OK

Line 4 is $1

4) Should I also file a form 8606 to classify my IRA contribution as non deductible 6,000 though it was

removed as excess ?

No

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This is the same answer as before,

your excess is resolved in Part III (IRAs)

You want to check the box that your year end balance was  Zero

@Pk841 

[fanfare]

You submit two forms 5329, 

Part 1 for your spouse with her SSN

Part 3 for you.

[Pk841]

Thank you. Appreciate your help @fanfare 

[Pk841]

@fanfare  I tried doing amended return for excess Roth using Turbotax and it's giving me a hard time.

I reached out to couple of CPAs and they are charging me way higher.

By any chance, I can submit 1040-X for all 3 years by myself to IRA without CPA's help. How can I do it online?

[fanfare]

All the information you need to prepare those new/changed forms has been discussed above.

To amend you need a copy of the original tax return you filed (or a transcript).

You can get the required forms in fillable PDF from the IRS website.
You don't need to use TurboTax amendment .

you will need TurboTax to calculate your new 2022 tax due to changes in income.

how did I get the impression that your wife took out 6007 in 2022 ?

now you are calling it yours.

Did you edit your previous replies?

you never corrected my reference to your wife.

If spouse is not involved put that $7 on 2022 use one Form 5329 for both actions

See Schedule 2 Line 8 for each year

If a deduction was taken for amount returned from Traditional, you have to reverse that on your amendment

so who had what?

I put together a  procedure assuming wife, but if wife is not involved that changes my reply

In any case, you know what you did so on your amendment report what you did.

you may want to start by preparing Part III first !
@Pk841 

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