IRS additional penalty /interest for 6% taxes penalty for Roth excess contribution ?
I realized we have been contributing Roth IRA since 2019 , but our income was too high and we are not eligible. So we did amended joint eturn for 2019 2020 2021 2022 and paid 6% tax penalty each year and withdrew all those years contribution on 10/11/2023.
IRS is still processing my amended return but they messed up. Do I need to pay any late penalty and interest for the 6% tax I paid? Let say if the 6% penalty in 2021 is $2000 (including my wife and me since 2019 over contribution) , does IRS charge interest and penalty on top of the $2000 by considering late payment since 2021 and interest?
Also, which tax form this year to report the withdrawals? 2022 is excess withdrawal but for 2019 to 2020 is distribution – this is broker firm told me. I got tons of tax forms already.
I have searched your website but cannot find . Anyone please help. Thank you
Permalink Submitted by Alan - IRA critic on Fri, 2024-02-16 02:05
The IRS has every right to bill late interest on the excise taxes, but it’s not clear how often they do it. You will have to wait to see if the IRS bills you.
You will report the distribution of the excess on Form 8606, but usually it’s tax free because it comes from your balance of regular Roth IRA contributions. You should have been keeping track of that balance in order to enter the correct amount on line 22 of Form 8606.
You might have been able to withdraw the 2022 excess prior to the extended due date of 10/15/2023. If you did the custodian would determine the gain or loss on that contribution and would have issed a 2023 1099R coded J8 or JP. Do not report such a distribution on Form 8606. Any gain distributed would be taxable in the year in which you made the 2022 contribution and reported on line 4b for the year determined by the 1099R code of 8 or P.
As for the excise tax, you will need a Form 5329 with your 2023 return to show that the remaining excess from the 2022 5329 has been removed. There would not be an excise tax due for 2023.
Form 8606 deals with the income tax, if any. Form 5329 reports the excise tax.