2020 Roth IRA Contribution
I had a client make a 2020 Roth IRA contribution for $7,000. He and his wife’s MAGI ended up over the limit so he was ineligible to fund a Roth IRA for 2020. Client is 65.
Can he carryforward the $7,000 from a 2020 Roth IRA Contribution to a 2021 Roth IRA contribution?
If so, would he just pay a one-time 6% penalty on the $7,000?
Can the earnings on the $7,000 2020 Roth IRA contribution stay in the Roth IRA or do those have to be withdrawn?
Permalink Submitted by Alan - IRA critic on Fri, 2021-05-28 22:09
Yes, an excess Roth contribution can be carried over to the next eligible year, but the 6% excise tax will be due. This is only a savings if the excise tax is less than the income tax on the amount of earnings that would otherwise have to be removed by the extended due date. Of course, if client also has 2021 MAGI in excess of the limits, then the 7000 needs to be distributed before year end to avoid a second year of excise tax. When the excise tax is incurred for a contribution year, any earnings stay in the Roth. Excise tax and removal with earnings are mutually exclusive.