Improper Roth 401(k) Rollover and Excess Roth Contribution
Husband deposited his wife’s Roth 401(k) rollover in his Roth IRA in 2022. This was just discovered. The 2024 return is in extension.
Since this is an improper rollover, I plan to advise the client to take the following steps:
(1) Remove the excess contribution plus the net income attributable to the contribution as soon as possible.
(2) Amend the 2022 return reporting the amount intended to be rolled over as taxable income and include Form 5329 to report the excess contribution and calculate the 6% excise tax.
(3) Paper file Form 5329 for 2023 reporting the excess contribution and remitting the 6% excise tax.
(3) If the excess is removed in 2024, file the 2024 104o reporting the net income attributable to the contribution and include Form 5329 to report the removal of the excess contribution.
Would you recommend this course of action? Am I missing any additional steps?
Thank you in advance for your input!
Permalink Submitted by Alan - IRA critic on Thu, 2025-06-26 11:26
The general plan is correct, but with the following modifications:
The removal of excess from his Roth does not involve gains because the due date has passed. Only the actual amount of the botched rollover needs to be withdrawn. No need to mention an excess contribution to the Roth custodian. The 1099R and Form 8606 for this distribution will be in 2025, not 2024.
Both the 2022 and 2023 Forms 5329 should be filed with a 1040X. The 2024 5329 and excise tax can be filed with the extended 2024 1040. Therefore, there will be 3 years of excise taxes, except to the extent that husband was eligible to make a regular Roth contribution for those years that he did not make, as that situation would have resulted in absorption of some of the excess. This would be reflected on the 5329.
The IRS might bill late interest for late payment of the excise taxes.
Finally, the 2025 return will include an 8606 to report the distribution (tax free since coming from regular Roth IRA contribution basis) and a final 5329 to show the distribution having eliminated the excess. No excise tax due with the 2025 5329.