Excess 2019 Roth Contribution

Submitted by John Going on Fri, 2020-12-18 17:16

Facts: Client made a $600 contribution to Roth account in 2019. Client filed MFS with income greater than $10K. The entire $600 is excess contribution. On the 2019 return, client paid the 6% excess tax. In 2020 she wants to fix but the corrective distribution date has passed.

Question – Seems the best route is to eliminate the excess contribution by making an ordinary distribution from the Roth in the amount of $600, leaving the earnings in the account. If that is correct, the $600 distribution will be a non-qualified distribution but will still be non-taxable because it is a return of her contribution. The earnings are allowed to stay in the Roth with no penalty. Is what I describe above correct – they would have no tax on the $600 Roth distribution and would not be taxed on the earnings left in the Roth?



Submitted by Alan - IRA critic on Fri, 2020-12-18 18:16

  • Your description is correct. She would have to report the 600 distribution on Form 8606 and on Form 5329 for 2020, but there will be no additional tax or penalty beyond the 2019 5329.
  • An alternative if she has 600 of “room” remaining for her 2020 Roth contribution, she could leave the 600 in the Roth, avoid a distribution, and use Form 2020 5329 to apply the 2019 excess 600 to 2020, although this is less likely to work with the low MFS 10k limit. 

Submitted by John Going on Fri, 2020-12-18 23:43

She finalized her divorce (will be filing single for 2020) earlier this year and her income is nominal (~$50K).  If I am reading your 2nd bullet point correctly, she can leave the excess in the Roth and I can use the 2020 Form 5329 to apply the amount to her 2020 amount (she has plenty of room).  Did I understand you correctly? 

Submitted by Alan - IRA critic on Sat, 2020-12-19 01:17

Yes, filing single for 2020 should allow her to avoid removing the 600 from the Roth. Form 5329 will apply it to her 2020 contribution, so if she wants to top off her 2020 contribution, she must take this 600 into consideration and only contribute 5400 of other money.

Submitted by John Going on Sat, 2020-12-19 02:33

Thanks for the quick and helpful responses! Merry Christmas –

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