Excess Roth Contribution from 2021 – do I need to Amend?

Submitted by JJ Smith on Tue, 2023-03-28 20:56

When doing my current 2022 taxes (unfilled still) I realized I was over the MAGI limit having $4440 in excess contributions. That made me realize i was probably over in 2021, which ended up being $1300 over (partial contribution ovre limit). I have had vanguard do an “excess withdraw” for 2021, 2022 and 2023 figuring out the portion related to earnings etc…. My question is do I need to file an amended 2021 retrun or can I just submit a form 5329? Would the form 5329 be from now the current year version or the 2021 version of the form? Do I check amended on the form? Any help would be appreciated!



Submitted by Alan - IRA critic on Tue, 2023-03-28 23:51

Do not check “amended return” on the 5329 unless you are correcting a prior 5329. Best to file the 2021 5329 with Form 1040X to be sure the IRS will accept it. If you file it by itself, they may or may not accept it, even though this does not affect the rest of the 2021 return. Your choice.

Submitted by JJ Smith on Wed, 2023-03-29 01:46

What is the pro/con of filing the amended return?  The software I use seems straightforward enough to amend?  Is an amended return a flag for an audit vs just submitting 5329?  

Submitted by William Tuttle on Wed, 2023-03-29 14:10

  • You should have done an ordinary Roth distribution for the 2021 excess Roth contribution amount.
  • You are only required to and benefit from removal of an excess IRA contribution and earnings until the tax filing deadline including extensions.
  • Vanguard should have known not to remove 2021 excess IRA contributions and earnings after 10/17/22.
  • If as is quite possible, you had a loss on the 2021 exçess contributions. You will have to make an additional ordinary Roth distribution to remove the excess contribution balance.
  • This is necessary by 12/31/23 for the 2023 Form 5329 to reconcile the entire excess Roth contribution balance.
  • Otherwise the residual balance will be subject to a 6% excise tax until distributed.

Submitted by JJ Smith on Thu, 2023-03-30 00:53

  • 2021 – Vanguard did an excess contribution withdraw for the contribution only.  They said pasta the 6 month mark the earnings are not factored in.  I then filled out a form 5329 for the excess amount $1320 (due to the partial contribution based on MAGI formula) which resulted in a 6% penalty.  I also then wrote a check out for that 6% for $79 
  • 2022 – I have not filled my taxes yet so Vanguard did an excess contribution removal including earnings $4440 i contributed + earnings.  I then filled out my 5329 showing my excess of $1320 from prior year 2021 which as Alan pointed out resulted in another $79 penalty.  
  • General note – my roth position from 2021 to today when we did the excess was defintely a loss.  
  • Question – i am not following why i would do a roth distribution unless we are saying the same thing and I was using the incorrect terminology excess contribution amount of just the contribution (no earnings).  Did i do this correct?

Submitted by David Mertz on Thu, 2023-03-30 01:52

  • “They said past the 6 month mark the earnings are not factored in.”
  • By that they meant October 15, 2021, the 6-month extended filing deadline.  After that date the corrective distribution for an excess contribution made in 2021 is a regular distribution equal to the amount of the excess.  In this case Vanguard apparently did the correct regular distribution because they made no adjustment for investment gain or loss on the $1,320.  The distribution of the $1,320 should appear on a Form 1099-R separate from the one for the return of the 2022 contribution because the coding is different.

Submitted by JJ Smith on Thu, 2023-03-30 02:02

Thank you!  Since I just did this yesterday I will get the 1099r and account for it for my 2023 taxes right?  But ive got the penalty squared away correct, and no more 5329’s?   

Submitted by William Tuttle on Thu, 2023-03-30 03:56

You will have three Form 5329s.

  1. A 2021 Form 5329 with 6% excise tax payment on the 2021 excess contribution.
  2. A 2022 Form 5329 with 6% excise tax payment on the exçess contribution balance.
  3. A 2023 Form 5329 reconciling the excess contribution balance with the 2023 ordinary Roth IRA distribution.

Submitted by JJ Smith on Thu, 2023-03-30 12:53

got it!  So in 2023 ill do one more 5329, where does the 1099r come into play? 

Submitted by Alan - IRA critic on Fri, 2023-03-31 01:57

  • You should receive 2 1099R forms in January. The first will be for the removal of your 2022 excess contribution as adjusted for gain or loss. If 4400 was the 2022 excess, you probably had a loss and received less than 4400. But if you received more than 4400 due to a gain, the gain will show in Box 2a, and you will owe tax on the gain for the year in which you made the 2022 contribution (either 2022 or 2023). Do not report this corrective distribution on Form 8606. You should include an explanatory statement with your 2022 return describing the excess contribution (date and amount), and that you had it returned (date and amount it was worth when you received the check). 
  • The second 1099R will be to report the distribution of 1320 for income tax purposes. You will report that 1099R on Form 8606 on your 2023 return. This comes from your balance of regular Roth contributions that goes on line 22. There will be no tax or penalty on this distribution. 
  • Again, the 5329 reports excess contributions and excise taxes. Form 8606 deals with income taxes on distributions. 

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