MAGI exceeds income limits for Roth IRA contributions

Forum|Forum|2 years ago
February 6, 2024
2 replies
10 views

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?

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Best answer by qbteachmt

"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.

T

Terry53029

Intuit Community Champion

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

A

aedwanAuthor

Level 5

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

Level 15

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).

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A

aedwanAuthor

Level 5

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.

qbteachmtAnswer

Level 15

"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.

Don't yell at us; we're volunteers

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