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ROTH IRA Contribution Penalty

Forum|Forum|3 years ago
March 6, 2023
3 replies
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Two ineligible $6,000 contributions were made on 9/7/22 and 3/16/21 to Roth IRA. The total account value at the moment is $12,661. The income is over the limit.

What is the best way to handle this now? To my understanding, need to withdraw both since recharacterization to a traditional IRA makes no sense since there will be penalties anyways for the 3/16/21 contribution.

Also, the 2021 contribution and penalty are not reflected on 2021 returns. Do we need to amend 2021 return to include a form 5329, or can we just mail a form 5329 without amending the entire return?

To my understanding, if we withdraw all of it by the year end, then no penalty for 2022 contribution? Would anything need to be reported on 2022 returns? I am suspecting the earnings would need to be reported as income on 2022 returns or on 2023 returns ?

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Best answer by sjrcpa

5329 can be filed as a stand alone form.

qbteachmt

Level 15

Are you sure the 2021 contribution isn't for tax year 2020? Form 5498 should show the tax year for each.

You have taxable earnings and excise tax for leaving the money over year(s).

Your removal deadline isn't year end; it's based on the filing due date of the tax return, including extensions. Because there have been so many extended due dates, I would recommend simply using google:

how to correct ineligible roth ira contributions

A lot of great articles exist directed to the consumer, as well as from the IRS, for steps to take.

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MarinaEAAuthor

Level 5

I am asking her for all the details as no 5498 was provided. Ended up one contribution was not even a ROTH IRA but a Traditional IRA so don't have to worry about that one.

One was ROTH however.

I did google search yesterday quite a bit and found many articles, however the main question I can't find any information on is - does one needs to amend the returns just to file 5329 to pay penalties or 5329 can be filed as "stand alone"?!

sjrcpaAnswer

Level 15

5329 can be filed as a stand alone form.

The more I know the more I don’t know.

qbteachmt

Level 15

To confirm:

"Two ineligible $6,000 contributions were made on 9/7/22

For tax year 2022?

"and 3/16/21 to Roth IRA."

For tax year 2021?

Now work on the tax filing due dates, to know which amount falls where. If 3/16/21 was the "make your 2020 contribution by the tax filing due date" then that is a tax year 2020 problem, excise tax and taxable earnings; and that affects 2021 tax year as a carry forward mistake. If not removed by the filing due date for tax year 2020, and not removed by the filing due date for tax year 2021, it affects each year. The excise tax carries on and on, until the contribution and attributable earnings are removed.

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MarinaEAAuthor

Level 5

Thank you for all your information. I still have no idea how to go about this as I keep getting contradicting information. To answer your questions.

Roth contribution were made for 2021 and for 2022. I have 5498 and all paperwork and confirmed it with her. As of 12/31/2022, the value of her Roth IRA is $12,089.

So two contributions 6k each plus some earnings/interest.

qbteachmt

Level 15

Here's another Q&A that is similar to what you need to do:

https://www.irahelp.com/forum-post/62723-multiple-year-excess-roth-ira-contributions-including-current-year

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