Mistake on Roth; what can be done?
Single person makes max Roth contribution yearly 2007-16. Gets married 2016. Continues to make max yearly contributions 2016-19. All in same account. Problem: was ineligible to make contribution 2016-19 because filed taxes separately, not jointly (married, live together). What can be done to correct, if anything? Hopefully any negative consequences won’t go all the way back to 2007. Thank you in advance for your reply.
Permalink Submitted by Alan - IRA critic on Wed, 2021-04-14 21:22
Problems only go back to 2016. First determine if it is practical to amend 2017-2019 to joint returns. Too late for 2016, and 2017 deadline to amend is 5/17. When considering this, check if joint MAGi for these years might also be too high for regular Roth contributions.
Assuming above is not practical, the only solution is to add up all 4 years of contributions and ask for a distribution of that amount. Do not mention excess contributions to custodians, just request a flat dollar distribution. Earnings on these contributions remain in the Roth since excise taxes will be due. This distribution should be tax free since it is regular contributions being returned.
The excise taxes are cumulative. File a 2016 5329 to pay 2016 excise tax; 2017 5329 to pay excise tax on both 2016 and 2017; 2018 5329 to pay excise tax on 2016-2018; 2019 5329 to pay excise tax on 2016-2019; 2020 5329 to pay excise tax on 2016-2019; finally 2021 5329 to show the excess has been cured and no excise taxes due for 2021. 2016-2020 5329s can be filed together without a 1040X.
The IRS may or may not charge late interest for late payment of the excise taxes.
Just curious, how was this discovered now? By 2020 tax program?