Roth Corrective Distribution – Minimizing Excise Tax on 5329

In 2013 I made excess Roth IRA contributions and unfortunately did not correct it in time.
So on my 2014 form 5329 there will be an amount on line 18.

Form 5329 Line 19 is the difference between the allowed contribution and actual contribution for 2014. So if my 2014 contribution is less than the maximum, this will reduce my penalty on the 2013 excess.

So far so good. Problem is, I did in fact contribute the maximum allowed amount in 2014. However, it’s still before the tax filing deadline. So, can I contact my broker and ask them to make a corrective distribution for my 2014 contributions. There are no gains on these contributions, so this may be a sensible thing to do. So my question is whether a corrective distribution, which essentially reduces my 2014 contributions, will apply to 5329 line 19?

In other words, how exactly to compute 5329 line 19?
A) 2014 maximum contribution MINUS 2014 actual contribution
B) 2014 maximum contribution MINUS 2014 actual contribution PLUS 2014 corrective distribution

I can’t tell from the IRS instructions and I’m hoping it’s “B” which only seems fair.

Really appreciate any help with this. Thanks.



Actually it is similar to B with a technical adjustment. It would be the max contribution minus the actual contribution, but the actual contribution is now 0 because it was returned by the due date. That will produce a 0 on line 22, which is what you want because it would eliminate the 6% excise tax from applying to 2014. Removal of your 2014 contribution has produced the “room” to apply your 2013 excess to 2014 per the 5329. 



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