Form 5329 / Excess Contributions

Submitted by Derek S on Fri, 2023-01-20 01:16

Client realized (too late) that he made $100 in excess contributions in 2021 to a Roth IRA (his MAGI was over the income limit). 2022 contributions were $100 less than the max allowed.
To fix the issue, I assume he needs to file both a 5329 for 2021 as well as a 1040X for 2021, and pay the 6% penalty, correct? Or can he just file the 5329 with the penalty payment for 2021, and that is all, since his 2022 contributions did not max out, and the $100 excess will then be considered 2022 contributions? Thanks



Submitted by Alan - IRA critic on Fri, 2023-01-20 01:37

Client will need the 2021 1040X with a 2021 5329 to pay the 6% excise tax. If client cleared the excess by “absorption” in 2022 he still will have to file a 2022 5329 with his 1040 that will show that the unused space left from the 2022 contribution absorbed the 2021 excess, leaving 0 as the excess amount in 2022. There will be no excise tax due for 2022.

Submitted by Derek S on Fri, 2023-01-20 17:51

Would he be able to just file a 2021-5329 and pay the tax without amending the 2021-1040, or is the 1040X amendment required?

Submitted by Alan - IRA critic on Fri, 2023-01-20 18:15

Many taxpayers have done just that, but the rather vague IRS publications technically ask for a 1040X, and sometimes the IRS will return a 5329 and ask for the 1040X with it. So he could try, but a stand alone 5329 might be returned by the IRS.

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