Excess Roth IRA Contributions 2011, 2012, 2013

Submitted by Gregory Rey on Sat, 2017-02-25 09:32

I just recently found out that i made excess contributions for the following years. 2011 ($5,000) 2012 ($5,000) 2013 (1693) total $11,693. I have a few questions. Per my calculation I must file form 5329 for years 2011 to 2016, Can I file these without 1040X for 2011 to 2015 and for 2016 include with my 2016 return? Can you confirm i get a total of 3706.32 in excise taxes through 2016. Next question is do i request a premature distribution from my Etrade IRA or request an excess contribution removal for the full 11,693? I have made max contributions for 2014 and 2015 but none for 2016. After the distribution can i use the proceeds to make my 5500 2016 Roth contribution? So after this i would assume i have 0 excess contributions and will also get to add an additional 5500 to 2016 which would mean my net contributions are only reduced by 11,693-5500= 6193.00.

Also will I have to pay any more excise tax for 2017 if i do this distribution this month Feb 2017? I would assume when I file the for 5329 for 2017 it should be 0 if I did the distribution? Or do i do a distribution of 6193 then on the 2016 5329 form i can add the 5500.00 that I did not make as a contribution and it will still come out to zero?

I would also have to fill out a 2017 form 8606 showing the non qualified distribution but because my basis would be more than i deducted it would not be penalized and I do not have to withdraw any earnings?

I appreciate all the info you can provide any and all information to help

Thanks



Submitted by Alan - IRA critic on Sat, 2017-02-25 20:55

  • You are pretty much on track. I assume you took NO distributions from your Roth (any Roth if you have more than one) from 2012 to the present, since any distributions would have to be reflected in Form 5329 for the year of distribution. For 2016, Form 5329 will apply 5500 of your accumulated excess contributions as your 2016 Roth contribution, and that will eliminate some of the excise tax for 2016. Therefore, you cannot make another contribution for 2016. If you also expect to be eligible for 2017 for a full Roth contribution, your 2017 5329 will apply another 5500 of your excess to 2017, which leaves only $693 to withdraw before the end of 2017. You would then have no excise tax for 2017 and your excess balance will be 0 on your 2017 5329.
  • In summary,  2011 excess 5,000; 2012 10,000; 2013 11,693; 2014 11,693; 2015 11,693; 2016  6,193. Total excise tax 6% of 56,272 = 3,376. The IRS may also bill you late interest for paying these late. The tax I figured is less than yours because I reduced the 2016 excise tax on 5500 which the 5329 will apply to 2016.
  • The IRS does not need a 1040X with these 5329 forms, but their instructions suggest to file one anyway. Usually they will be accepted stand alone, but there is a chance that they will come back and ask for the 1040 X for each year through  2015. Start with the 2011 5329 since these are cumulative. Be sure to check my math.
  • The 2017 8606 would report a distribution of 693 which is non taxable since it comes from your balance in regular Roth contributions which you would show on line 22.
  • Assumed here is that you are eligible for full Roth contributions for 2014-2017. If not, your excess will be higher and require a larger distribution this year to eliminate them. And your excise tax will be lower for any year in which the total value of all your Roth IRAs is less than the amount of your excess contributions. This is unlikely. This rule is stated on Form 5329 on the last line you complete.

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