Removal of excess Roth IRA contribution after Oct 15th deadline

Dear Alan et al,

I have a client younger than 59 1/2 who made a $410 excess contribution to her Roth IRA for the 2018 tax year. She did not recharacterize this excess contribution by October 15th. I’ve read the Dec 2019 newsletter and talked with the custodian’s tax reporting department. I understand that the options are:

#1. Remove the $410. The custodian will put Code ‘J’ in Box 7 of the 1099R that she will receive for the 2019 tax year. The client’s CPA will file Form 5329 and the client will pay the 6% excise tax ($24.60). The client’s CPA will file Form 8606 showing the withdrawal as a non-taxable return of contribution.

#2. Carry the $410 Roth IRA contribution forward for the 2019 tax year. The client’s CPA will file Form 5329 and Form 8606 as in option #1.

In either event, are Forms 5329 and 8606 filed on the 2019 tax return (the year that the withdrawal comes out)? I wanted to confirm that the 2018 return doesn’t need to be amended.

Thanks in advance,

Chris



  • Re #1 – A 5329 to report the 6% excise tax is required for 2018, but it can be filed alone without a 1040X. 8606 is not needed for 2018 since there were no distributions in 2018. 
  • Re #2 – A 5329 is also required for 2019, added to the 1040. It will show that the excess total of 410 has been distributed eliminating the excess balance. Therefore, there is no 2019 excise tax. Form 8606 filed for 2019 will report the early distribution of 410, coming from the balance of regular Roth contributions. Therefore there is no income tax due on this distribution. In other words, only one 8606, for 2019.

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