Excess Roth IRA Contribution and Account Value
Have a colleague who has a client…..
Did backdoor and direct Roth funding for 2 decades and was not eligible for direct funding (AGI) and most of the backdoor would have been taxable given other money in his pretax IRAs (he took them all as tax free conversions). Yes, he is a doctor who did his on planning (heck sign me up for his advice).
His CPA discovered this in 2024 and asked me my thoughts. I am a CPA and CFP but I don’t like my answers.
What I see is under SECURE 2.0 he only has to pay excess contribution penalties for the last 6 years under the statute of limitations. Secondly, I see if this was found annually on the transfers and reversed prior to tax filing deadline (inclusive of extensions) he would have to take the money out. However, I can’t find anything saying that he has to recharacterize as pre tax money from the Roth IRA. He has over $500k in the Roth and I really think this is not fair if he gets to keep it there and just pay 6 years of penalties.
Can anyone help me?
Thank you
Permalink Submitted by William Tuttle on Fri, 2024-03-08 00:24
Fairness is not a requirement of the tax code, IRS regulations or guidance.
A Statute of Limitations is a fundamental criteria of our criminal, civil and tax codes. Standard SOLs apply to incorrect Form 8606 incorporated by Form 1040.
Three (3) years in most cases
Six (6) years if unclaimed income > 25%
Unlimited if fraudulent or no return. The latter applied to failure to file Form 5329 before the SECURE Act 2.0 changes.
There is some question whether the revised 6-year Form 5329 applies retroactively. However, the general consensus is to act as though it is