Over Contributed Roth IRA

jigss1987
jigss1987 Member Posts: 1 Newcomer
in Filing my taxes

Hello,

I made over contribution in 2021. I didnt realize that mistake until later 2023. I withdrew the amount (at loss, so no earnings) in December 2023 to avoid further issues (i later realized that my MAGI was lower than threshold for full contributions). I received 1099-R after I filed my taxes so I didn't include it.

Based on my research I need to follow the following steps:

  1. 2021-I need to file amendment and pay 6% as per 5329.
  2. 2022-I need to file amendment and pay 6% as pe 5329.
  3. 2023- No penalty as I was qualified for full contributions and also I closed the account before Dec 31. However, i still need to file amendment to include 1099-R.

My questions:

  1. Are above steps correct? Am I missing anything?
  2. Should I file amendments in order? Or can I send all amendments together?
  3. Since I closed ROTh ira account at loss, any way to deduct that loss in 2023 return?

Thank you for your help!

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Answers

  • CoryF
    CoryF FreeTaxUSA Agent Posts: 198

    Hello Jigss1987

    1. That is the correct sequence to report the Overcontribution to the ROTH IRA for numbers 1, and 2. The questions in the 2022 tax year path Deductions/Credits > IRA Contributions will ask about the 2021 Form 5329 to properly report the penalty on the 2022 return. However, for number 3, you will need to check the box 7 code for the 2023 Form 1099-R as it may point you to include the distribution in your 2021 tax year. As this would help, you could include the 1099-R distribution income, so that you only have to file the 2021 Amendment once.
    2. You can send the Amendments all at once. The IRS will identify the tax years separately and process them accordingly. It is advised that you send a cashier's check to pay the owed tax with each Amendment to avoid further penalties and interest at the point of processing the Amendment.
    3. There is no way to deduct losses within Retirement Accounts. All activity is nontaxable and only the distributions taken are reported on the tax returns. In this instance, you are withdrawing an overcontribution so the distribution will be nontaxable. As a rule, all Roth IRA distributions are nontaxable as long as you meet the age requirement of 59 1/2 and your contributions remain undistributed for a period of 5 years.

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