ROTH excess contributions or early distributions

Submitted by paul anna on Tue, 2018-03-06 00:56

I hope this makes sense and someone can help, I will try to keep short.

HISTORY: Retired in 2014, unfortunately kept making ROTH contributions without having any earned income to support them. I made them for 2015, 2016, 2017. All funds were removed in Sept 2017 after talking to my financial institution. Filed form 5329’s for the 2015 and used the section for EXCESS contributions. Paid the IRS $390 for 2015 and filed and paid the same for 2016. Subsequently was fined another $155 for filing the 5329’s late.

NOW: I want to submit my 2017 taxes but have no idea how to account for all of the ROTH money removed. I consider it excess, my financial institution provided 1099 for each withdrawal showing early distributions codes. I have a total of 6 1099’s for my wife and I. How in the H….. do I report this?



Submitted by Alan - IRA critic on Tue, 2018-03-06 01:24

  • I assume you did not qualify for a spousal contribution in any of these years, and that the excise tax amount of 390 was paid for each spouse on a 5329 for each spouse.  In Sept, 2017 it was too late to remove the 2015 excess with earnings, so you correctly paid the excise taxes for that contribution for 2015 and 2016. For the 2016 and 2017 excess contributions you apparently removed the excess amount and also received allocated earnings on those contributions.
  • I am guessing about the figures on your 1099R forms. If you made the 2016 excess contribution in 2016, then the earnings removed on that contribution are taxable in 2016, and that would require a 1040X to report those earnings. Those 2 1099R forms would be coded P (and J if under 59.5). The 2017 excess contribution earnings would be taxable in 2017 (Code 8 or 8J). Also there should be 2 1099R forms to report the distribution of 6500 each for the return of the 2015 excess. Earnings are not returned with that contribution, so the code would be J or T depending on your age. This distribution must be reported on Form 8606 with your 2017 return, and since it is a return of regular contributions, there is no tax or penalty. You will also need 2017 5329 to report the removal of the remaining 6500 excess amount, and there is no excise tax for 2017.
  • Do not show the return of the 2016 and 2017 excess amounts on Form 8606 or on Form 5329, since they were returned with earnings. However, you should include an explanatory statement for each spouse explaining the date and amount of the 2017 Roth contributions, indicate that you had the entire contribution amount returned with earnings and what that amount was for 2017. Include this same info for the 2016 contribution on the 1040 X that you are filing for 2016 to report the taxable earnings.
  • I have made plenty of assumptions here regarding the 1099 forms etc. Advice is something is different.

Submitted by paul anna on Tue, 2018-03-06 11:59

For 2015, I did file a 5329 for myself and my spouse as stated. Of course, I paid the $390 penalty for each year for each person. So I guess that part is done. The only remaining question I have for 2015’s error is ” Does the distribution of those funds, reported in box 1 of the 1099R go on our 2017 taxes? I appreciate you info so much, THANK YOU!! 

Submitted by Alan - IRA critic on Tue, 2018-03-06 16:33

Yes, the distribution of the 13k is reported on Form 8606 with your 2017 return. There should be no tax or penalty for this distribution. You did not state your ages, but if your first Roth contribution was prior to 2013 and you are over 59.5 at the time of the distribution, your Roth is qualified and you do NOT need Form 8606 to report the distribution. Just enter it on line 15a of Form 1040.

Submitted by paul anna on Thu, 2018-03-08 01:06

Thanks, I now know what to do with 2015. Now 2016, I know I have to file an amended return for 2016. Am I correct in assuming this is to show the earnings only or do I show both the distribution and the earnings? Where would this information go? Lastly, like the 2015 amount, does the 2016 13,000 excess contribution go on my 2017 taxes too? Sorry for needing so much help but I have talked to so many professionals who did not know what to do with this problem. 

Submitted by Alan - IRA critic on Thu, 2018-03-08 02:21

  • For the 2016 1040X you would be reporting the earnings income (Box 2a amount) as an increased line 1 amount (AGI). The rest of the 1040X is just copying the original info from your 1040, and re figuring your tax and the 10% penalty on the earnings in Box 2a. Also, a blank box in the 1040X to explain that removal of your 2016 excess contribution with earnings is the reason you are amending your 2016 return. In your first post you indicated that you already filed a 2016 5329 for each of you to pay the 390 excise tax again since the 2015 excess was still in the account on 12/31/2016. You do not have to report that again.
  • You also removed your 2017 excess contribution (separate 1099R you have). Report the Box 1 amount on line 15a and the 2a amount on 15b. If under 59.5 you owe a 10% penalty on the earnings. This goes directly on line 59 of Form 1040. You also should include an explanatory statement indicating the date and amount of the contribution for each, that you removed the entire excess contribution with earnings on (date), and the total amount returned for each. A final 2017 Form 5329 will show that your prior excess contribution of 6500 each was removed (line 20) and when subtracted from the 6500 leaves 0 as an excess contribution and there is no more excise tax for 2017 and no excess amount remaining. Form 8606 only reports the distribution of 6500 each which was your 2015 excess returned without earnings. No tax or penalty since this is a return of regular Roth contributions. Do not report any of the 2016 and 2017 returned contributions on the 8606 because they were returned with earnings and therefore treated as never made.Make sure that your 2017 5329 picks up the correct figures from your 2016 5329 that you filed earlier.

Submitted by paul anna on Sat, 2018-03-10 03:38

Does the information for 2016 change if the contributions for 2016 were made in 2017? The reason I ask is because my financial institution gave me a letter saying the earnings would go on my 2017 return. That would make sense.

Submitted by Alan - IRA critic on Sat, 2018-03-10 04:22

Yes, if you withdraw a contribution with earnings, the earnings are taxable in the year the contribution was made. The 1099R will have a code that requires this.

Submitted by paul anna on Mon, 2018-03-12 13:33

WOW, lots to do. Okay, I called the Credit Union that holds my ROTH. My 2016 contribution was made on 1/11/16. As I understand then the 2016 1040X is required. Last question on 2016, where do I report the 10 percent penalty? Sorry for dragging this on and truely appreciate the information provided.

Submitted by paul anna on Mon, 2018-03-12 13:34

WOW, lots to do. Okay, I called the Credit Union that holds my ROTH. My 2016 contribution was made on 1/11/16. As I understand then the 2016 1040X is required. Last question on 2016, where do I report the 10 percent penalty? Sorry for dragging this on and truely appreciate the information provided.

Submitted by Alan - IRA critic on Mon, 2018-03-12 16:05

Report the 10% penalty on line 10, “Other Taxes”.

Submitted by paul anna on Thu, 2018-03-29 22:17

Summary of problem: Contributed to our ROTH IRAs for 2015 thru 2017 without having earned income to support these actions. (My contributions 2015,2016,2017) (Wife 2015, 2016) Both under 59 1/2Summary of actions :-All funds and excess removed by financial institution on sep 10th 2017-for 2015 completed 5329s and paid $390 for each of us-for 2016 completed 5329s and paid tax again. Submitted 1040x to add additional income from withdrawals-FOR 2017 I need to:Include the 6500 2017 contribution on line 15a and show 0 on 15b. Attach explanation for entrySubmit two 5329s. one for each spouse with the $6500 shown in Part IV block 18, rest of section is 0’s Submit 8606 to show the withdrawal/distribution of 2015’s $13000. What entries are necessary on the form?Thank you so much, I actually went to a tax preparer and will have to go back for a third time to have my taxes correctedfor 2017. 

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