Roth IRA Excess Contributions

Submitted by Daniel S Ail on Thu, 2015-08-13 16:49

I have a new client, who is currently under the age of 50, who upon me reviewing his historical Roth IRA contributions, I discovered he has excess contributions of approximately $1,600 for the 2010 tax year and $2,300 for the 2012 tax year. The client only funded his 2011 Roth IRA with a contribution of $3,333. The maximum deferral he could have made in 2011 was $5,000. The client funded his Roth IRA with $5,333 for the 2013 tax year; however, has made no contributions to his Roth IRA in 2014 or 2015. The maximum deferral for the 2013 tax year is $5,500.

Is it possible to recharacterize the excess contribution from the 2010 tax year, and any income or earnings associated with the excess contribution, and treat it as a 2011 contribution?

Is it possible to recharacterize the excess contribution from the 2012 tax year, and any income or earnings associated with the excess contribution, and treat it as a 2013 and 2014 contribution?

Thank you



Submitted by Alan - IRA critic on Thu, 2015-08-13 21:24

  • No recharacterizations are possible as the deadlines for those have all passed. However, in years when client was eligible to make Roth contributions but DID NOT, the excess contributions from earlier years are applied to that year on Form 5329. Earnings are not involved and remain in the Roth.
  • The excise tax for 2010 would be 6% of 1600 on Form 5329 for 2010.
  • On the 2011 5329, the form will apply the 1600 excess from 2010 to the year 2011. No excise tax due for 2011.
  • The excise tax for 2012 would be 6% of 2300 on Form 5329 for 2012.
  • 2013 5329 can apply 167 of 2012 excess to 2013. Excise tax due 6% of 2133.
  • Remainder of 2133 excess can be applied on 2014 5329. No excise tax due.
  • Above assumes client was eligible to make the full contribution in years when prior excess amounts were applied. For example, that client was eligible to make a Roth contribution for 2014.
  • Prior year 5329 forms should be filed with a 1040X. IRS may bill late interest on the excise taxes paid late.

Submitted by Daniel S Ail on Tue, 2015-08-18 03:41

Thank you for the information and response.  It is much apprecirated.

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