MAGI exceeds income limits for Roth IRA contributions

[aedwan]

A MFJ Taxpayer has contributed to Roth IRA not knowing that MAGI exceeds the phase-out threshold. He is planning to withdraw the excess contributions before the April 15th deadline to avoid the 6% penalty but the question is how to report contributions from Form 5498 and the excess on the tax return. Should we attach Form 5329 and/or wait for Form 1099-R to be issued for the withdrawal of the excess? Will the withdrawal be subject to the 10% early distribution penalty? 

[Terry53029]

You have 3 options, as long as you are under the total amount allowed for IRA's. ($6500, or $7500 over age 50)

1) you can have broker make the excess for tax year 2024.

2) you can have him recharacterize to a nondeductible traditionally IRA.

3) remove excess. This would be my last choice

[aedwan]

Great, thanks so much Terry! Since Form 5498 is filed with the IRS, do I have to do anything within the tax return to reflect the recharacterization to waive the 6%? 

[qbteachmt]

If you do the corrective distribution or recharacterization before the 2023 deadline, it's as if it never happened. You don't wait for the 1099-R. It will come dated for 2024 with code P = previous tax year = already reported, or not reportable because it was moot (addressed in time).

[aedwan]

Thanks again…Really appreciate your time! Just trying to figure if he needs to report the contributions listed on Form 5498 on his 2023 tax return. 

[qbteachmt · Accepted solution]

"needs to report the contributions listed on Form 5498"

Not if that's the error which is going to be addressed in time. Form 5498 is informational and reflects money in. If it was the wrong thing to do, and it is offset or corrected, it is moot. A typical qualifying contribution also is not reported, but would be tracked when it is basis.

[aedwan]

Your insights are greatly appreciated!