Excess Roth Contribution
In 2006 I made $4,000 contribution to a Roth IRA. Later that same year I realized a large capital gain, but never corrected the excess contribution for that year. Nor did I correct it during 2007. I corrected it during 2008. May I file an amended return by October 15th, 2008 to get back the $240 penalty that I paid on my 2007 return?
Permalink Submitted by Alan Spross on Mon, 2008-10-13 00:57
No.
Since you did not correct the 2006 excess contribution by 10/15/07, the correction rules change from those of timely corrections to post deadline rules.
There is a trade off in the post deadline rules. The plus side is that you should not withdraw any earnings. The negative is that the 6% excise tax is due for each year the excess contribution remained in the Roth at year end. Therefore, you owe $240 for 2006 as well as the $240 for 2007. The IRS will probably bill interest on these payments if they were not paid by the basic return due date.
You would pay the 2006 and 2007 excise taxes on Form 5329. You will also need a 5329 on your 2008 return just to show that you corrected the excess contribution. No additional charge for 2008. You will also need Form 8606 to report the distribution you just received. There should be no tax on the distribution itself, since it came from your regular contributions. As stated above, you only needed to withdraw the $4,000 contribution unadjusted for earnings.
You did not say HOW you corrected the excess, but you can also apply the prior excess to a current year contribution, eg to 2008 if you are eligible. If you do that, it is also reported on Form 5329.