Overcontribution to roth 2015-2018
I was married in 2015 and filed MFS. This filing status made me ineligible to contribute but I was unaware. Now, in 2025, I’m just discovering this error and need to correct it. I contributed 5500 in 2015, 5500 in 2016, 5500 in 2017 and the 5500 contribution for 2018 was made in 2019. I withdrew the 22000 excess from the account in Feb. of 2025 and left the earnings behind. Should I have also withdrawn the earnings? Will I incur an additional excise tax for 2025? What should the 1099R coding be and what do I do in the meantime while I wait for it to come next year? The custodian classified it as an “early withdraw before 59 1/2”. At approx $12,500 this is rather expensive and then I’ll surely expect additional taxes and or penalties to come. Would love to get this right to avoid any further expense or complications but am getting conflicting answers from both a tax preparer and a financial advisor. Any assistance is appreciated. Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2025-06-20 13:32
When you remove an excess contribution after the due date, the earnings remain in the IRA, but because the removal was after the due date, you will owe the 6% excise tax on Form 5329 for each excess year.
The removal 1099R will not be coded for a removal of excess and will only have the J code like any other early Roth distribution. You will have to file Form 8606 to report the distribution, but it will be non taxable since it comes from your Roth IRA regular contribution basis, which you will need to determine because it will go on line 22 of Form 8606.
I assume the 12,500 is your estimate for the combined 6% excise taxes for all these years, but note that Form 5329 will apply the excess to any later years in which you were eligible for a Roth contribution that you did not make if you no longer filed MFS in a later year. That would reduce your excise taxes in those later years, as would any Roth distributions you took earlier than the 22000 distribution. In any event, because you withdrew the entire excess in 2025, there will be additional excise tax due for 2025, but you will have to file a final 5329 for 2025 to document that you withdrew the excess and reduced your excess balance to 0.
On the negative side, when the IRS gets all these 5329 forms with 1040X for those years, they also might send you a bill for late interest due to late payment of the excise taxes.