Excess Roth IRA contributions in 2012, 2013 and 2016
Hello. I just found out last week that I accidentally made excess Roth IRA contributions in three different years: 2012, 2013 and 2016. I have both a Traditional IRA and a Roth IRA, and I was under the mistaken impression that the maximum yearly contribution applied to EACH account, not all your IRA accounts combined. For the 2016 excess I was able to have my IRA custodian withdraw it in time and apply it as a 2017 contribution.
I read that you are allowed to apply excess contributions in previous years to a later year if you under-contributed for that year. My 2012 and 2013 excess contributions total $5,900. Luckily, I did not make any contributions in 2015 to either IRA account. Can I just “apply” $5,500 of the excess $5,900 to to my Roth for 2015? Is there some mechanism for recoding it as a 2015 contribution, or does it just happen automatically? My IRA custodian could not help me with this.
For the remaining $400 excess, I believe I can apply that to 2016, since my contributions for all IRA’s in 2016 is now $5,000 (after I fixed that other overage).
Also, if I neglect to file 5329’s for tax years 2012-2016 to pay the 6% excise tax on my mistake, what do you think the chances are that the IRS will ever bill me for this? If I fail to pay the excise tax, does interest accrue or are there other late fees and/or penalties associated with failure to file a 5329?
BTW, I have no employer-based retirement savings plan, not for any of these years. I believe I was eligible to make maximum IRA contributions of $5,500 every year ($5,000 2012 and before).
I would appreciate any advice! Thank you!
Permalink Submitted by Alan - IRA critic on Fri, 2017-03-10 01:22
When you do not correct an excess contribution by the extended due date and have contributed to both a TIRA and a Roth for a year, your excess contribution is deemed to apply to the Roth IRA. Therefore, you must start with Form 5329 for 2012 and determine your excess Roth contribution, and pay the 6% excise tax on it. There is no statute of limitations for excess contributions so the IRS can go back as far as they wish and eventually bill you for the excise tax and late interest which continues to accrue. Once you complete the 2012 5329, the excess carries over to 2013 and can increase by any 2013 excess amount. Just follow the Form and it will automatically result in applying the Roth excess to any later year in which you did not make a Roth contribution you were eligible to make. Your excess is also reduced if you took a distribution from your Roth IRA in any such year. By the time you get to the 2015 5329 you should be able to apply up to 5500 of the accumulated excess to 2015 and reduce the amount the 6% applies to. Same for 2016. If this does not correct the total excess, you can remove your 2017 contribution and create another year of space to absorb the excess. Remember that you cannot apply the old excess unless you are both eligible for a Roth contribution and did not make that full contribution for that year. Once you fully understand how to complete a 5329, it should not be difficult to go through all the years up to the present. That said, you may have piled up a large total excise tax before the annual tax begins to reduce as you apply to later years. Eventually, it should be absorbed. The final 5329 will show that no excess remains and therefore no penalty for that year.