Roth IRA excess deposit
Having overcontributed to Roth IRA’s for 2010,2011 ,2012
by mistake and having paid the 6% penalty using
form 5329 for each year of those
years plus 2013 and soon to be 2014,
can the IRS then come back and charge
failure to file, and failure to pay penalties
and interest on top of the 6% penalty paid
on each year the excess contribution was in place?
Thanks.
Permalink Submitted by Alan - IRA critic on Mon, 2014-06-09 22:32
Typically, the IRS will only bill late interest on the excise tax, and sometimes will not even do that. Withdraw the excess Roth contribution before the end of this year and there will be no 6% penalty due for 2014, although you will have to file the 5329 as well as an 8606 to report distribution of the excess amounts. There should be no tax or penalty due for 2014.
Permalink Submitted by John Schwarz on Tue, 2014-06-10 03:18
Thanks for your reply. Not worried about 2014. Got that taken care of by withdrawing all the excess this year and will file the 5329 and 8606 for 2014. I understand the interest of 3% going back to the filing date for each of the years. The question is why the ” failure to file” penalty of up to 5% for 5 months and the “failure to pay” penalty of .5% per month for each month past the original filing date for the past years. Is there a basis to discuss that or is it best to just pay it. Amounts not huge but seems a bit excessive given the 6% excise tax payable for each year.
Permalink Submitted by Alan - IRA critic on Tue, 2014-06-10 03:51
This is not typical. Are you sure these extra penalties are all related to just your excess contribution? Were all the tax returns filed on time? If so, I would appeal everything but the late interest on the excise tax.
Permalink Submitted by John Schwarz on Tue, 2014-06-10 12:57
The original returns (2010-2012)were all filed on time. A 5329 was also attached to the 2013 retrun also filed on time this year. The 5329’s for those earlier years were filed together in March, 2014 after realizing that execss deposits were made. The penalties all relate to the 5329’s for those earlier years. Actually, only a bill for one year (2011) has been sent so far but perhaps the others will come. What do you think?
Permalink Submitted by Alan - IRA critic on Tue, 2014-06-10 16:04
I would appeal all but the late interest. Point out that you did file the return on time. and filed the 5329 as soon as you became aware that you had excess contributions. Strange that you did not receive anything for years after 2011. But since you already have a bill, you should not wait for others in an attempt to address them all at the same time. Perhaps you can be billed for the other penalties, but the penalty rules all intertwine and are tough to understand. Further, the IRS is very inconsistent in their application. I do not know enough about each separate penalty to provide a cite for you to use, but I would still appeal.
Permalink Submitted by John Schwarz on Tue, 2014-06-10 16:46
thanks. I will call them first and discuss. Shall I let you know how it goes?
Permalink Submitted by Alan - IRA critic on Tue, 2014-06-10 17:05
Yes, would appreciate that. Thanks.
Permalink Submitted by John Schwarz on Tue, 2014-06-10 20:22
I spoke with them. They offered to abate/cancel the penalties on the bill I had received for 2011 but then could do nor more if I received other bills for the other years. He then said that the bill for 2012 was actually enroute to me and maybe the one for 2010 would follow. He suggested that I wait to receive them and then call back to ask for the abatement on all three at once. I think this may be under the one time penalty abatement program or perhaps it was to be because of the circumstances of the Roth excess deposits I presented. Interest was not to be discussed and I said I was not questioning that. He gave me a six week window postponing any follow up by them if I don’t yet pay the bill already received by its due date this month in order to await the arrival of the other bills. Seems like it will work out. The one time penalty abatement program may apply to anyone who is otherwise up to date on previous tax filings. So I am not sure that they are really considering the circumstances of the 5329 filings very much but the end result will hopefully be good. I appreciate your thoughts.