Excess Contributions

Submitted by Mike Paul on Fri, 2018-11-16 03:42

I made an excess contribution several years ago and have been paying the 6% penalty every year on it. I am going to make an excess contribution distribution. The form is asking which year the excess contribution was made. Is it supposed to be the original year or the current year since I’ve been paying the penalty every year? Do I have a choice of which year I put on the form because I’ve been paying the penalty? Will the distribution be just the contribution, or the contribution plus earnings?



Submitted by Alan - IRA critic on Fri, 2018-11-16 15:47

  • The year is the year FOR WHICH you made the excess contribution, which will be the year you first filed a 5329 to pay the 6% excise tax. For any year other than 2018, the custodian will not calculate earnings and should just return the excess amount itself.
  • Are you sure that the 5329 form you have been filing are correct?  The form will automatically apply your excess to the first year after the contribution that you qualified to make that contribution, but did not. That would end your excise taxes with the year prior to the year it is applied. And if you could apply it to 2018, the same holds true, as you would file a 2018 5329 showing that you were eligible to make the contribution this year. The excise taxes would end in 2017. If you recheck the situation in the years you have already paid the excise taxes, you could file amended 5329 forms and request a refund of the excise taxes paid.

Submitted by Mike Paul on Fri, 2018-11-16 21:47

I am not sure that I filled out my 5329 form correctly. I have not been eligible to make a Roth contribution after the excess contribution year. I have been funding a non-deductible IRA to do a backdoor conversion in a few years.

Submitted by Alan - IRA critic on Sat, 2018-11-17 00:16

Every year that you made the non deductible TIRA contribution for back door Roth conversion purposes your max contribution was made and the excess could not have been applied to any of those years. If so, withdrawing the excess amount will end the excise in 2017. You will receive the excess Roth contribution amount back, will have to file Form 8606 to report it, but it will not be taxable, and you will not owe the excise tax for 2018.

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