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How can several years of excess roth contributions be corrected?

Forum|Forum|6 years ago
June 10, 2020
5 replies
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Client made excess Roth contributions over several years. I'm amending those years. Can the built up excess be withdrawn by the July 15, 2020 due date of the 2019 return to avoid the 6% extra tax for 2019? I can't seem to figure how to show a withdrawal of the built up excess on the IRA forms or on the form 5329. Thank you in advance for any input you provide.

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Best answer by RANDYBLANK

Here, from pub 590A, seems to be the pertinent point that helps my situation....

Applying excess contributions.

If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in 1 year to a later year if the contributions for that later year are less than the maximum allowed for that year.

Client has to pay the 6% for several back years, but, under the 'apply the excess contribution' scenario the problem will self correct in 2020....

thanks for your input

Just-Lisa-Now-

Intuit Community Champion

I dont think you need to amend, you can just send in the 5329's by themselves for the prior years.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

qbteachmt

Level 15

I would expect you should amend, if there are multiple years with over-contributions and that was never reported or removed. Each of those years has the 6% excise tax and the earnings on that excess are considered taxable each year, as well. If none of that was reported, much less acted on, then there would be need to amend. Yes, if you remove all of it (excess + earnings), there still is time to avoid 2019 excise and income tax on it. Or, apply the 2019 overage to 2020, if it qualifies. Here:

https://www.irs.gov/publications/p590a#en_US_2019_publink1000231024

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R

RANDYBLANKAuthorAnswer

Level 3

Here, from pub 590A, seems to be the pertinent point that helps my situation....

Applying excess contributions.

If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in 1 year to a later year if the contributions for that later year are less than the maximum allowed for that year.

Client has to pay the 6% for several back years, but, under the 'apply the excess contribution' scenario the problem will self correct in 2020....

thanks for your input

qbteachmt

Level 15

Isn't this your hurdle: "if the contributions for that later year are less than the maximum allowed for that year."

The person kept over-contributing, so there is no Self-correction except, there might still be time to use that for 2020.

Don't yell at us; we're volunteers

R

RANDYBLANKAuthor

Level 3

Client contributed less than maximum in years when his income level precluded contributions as well as in years when his income did not preclude contributions.

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