Excess Contribution and Roth Conversion

Submitted by Peter Flander on Mon, 2019-03-18 17:05

Hi,

I made an non deductible excess contribution to my Traditional IRA for 2018 early this year. I also made a 2019 non deductible contribution early this year. I then converted the whole traditional IRA to a Roth IRA. So I have a zero balance traditional IRA and can’t recharacterize the conversion under the new law from my understanding. How do I remove the excess that I contributed to the traditional IRA? Do I remove it from the Roth IRA now if that is even possible removing an excess contribution I did to a traditional IRA from the Roth IRA? Any tax consequences if I remove it from the Roth IRA?



Submitted by Alan - IRA critic on Mon, 2019-03-18 18:42

  • Assuming you had no TIRA balance other than these two contributions, your excess TIRA contribution must be removed from the Roth IRA. It is treated as a regular Roth IRA excess contribution per IRS Reg 1.408(A)-4, QA 3, since recharacterizations are no longer allowed. It may be a challenge to convince the Roth custodian of this rule and that you made an excess contribution to the TIRA before you converted. For the TIRA contributions to be excess, you either would have to be 70.5 or have no earned income to support the original contribution.
  • Once the custodian agrees to process the excess contributions removal, any earnings returned along with the excess contribution amount will be taxable in 2019, since that is the year you made these contributions. The earnings are also subject to 10% penalty on your 2019 return unless you are 59.5. If you have a loss and less than your contribution amount is returned, then there is no tax or penalty.

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