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Over-contributed to ROth IRA

Posted: Thu Sep 17, 2020 10:48 am
by NoRisk
Dear Bogleheads,

I need some advice and guidance. Any comments and suggestions will be appreciated!

For the past two or three years (I am trying to determine how many right now) I over-contributed to ROTH IRA. THe family income grew over the years and, as I maxed out ROTH IRA, I did not realize that I could only contribute so much. Now I have to somehow rectify the situation, but how? Is there a form to fill out? How do I determine the amount of overcontribution? We still qualify for ROth IRA contribution, just not the full amount. Where do I begin?

We have been going to the same accountant for the past 20 years at least and she has been aware that at some point we started contributing to Roth IRA. For the first few years I checked with her about the ability to contribute to ROTH IRA but did not for the past tree years and she did not warn us. What do you say about the situation?

Thank you all in advance.

Re: Over-contributed to ROth IRA

Posted: Thu Sep 17, 2020 12:28 pm
by kaneohe
https://fairmark.com/retirement/roth-ac ... roth-iras/

You will have to determine the excess contribution for each yr and the earnings attributed to those excess contributions and remove from the Roth (either remove from Roth or recharacterize to traditional IRA if possible/may be too late for some yrs).

Re: Over-contributed to ROth IRA

Posted: Thu Sep 17, 2020 12:59 pm
by NoRisk
Thank you! Now I know where to start.

Re: Over-contributed to ROth IRA

Posted: Thu Sep 17, 2020 4:19 pm
by Alan S.
Each year she should have asked you for the amount of each of your IRA contributions and type of contribution. She should then enter this info into her tax program and it will indicate if there is an excess contribution and how much.

For 2019 excess contributions you have until 10/15/2020 to either remove the excess with earnings or recharacterize the Roth excess as a TIRA contribution, most likely not able to be deducted. You have another year to do the same with your 2020 contributions.

For 2018 and older excess contributions, it is too late to recharacterize or remove with earnings. You will incur the 6% excise tax for each year's excess amount that remained in the IRA at year end.

Form 5329 provides an automatic fix if you took distributions in years following an excess, or if there were any years that you qualified for a contribution you did not make, the form will apply an older excess to the later year with room to absorb it. You would need to look a Form 5329 and the Inst for it to see how this all works.

The only imminent deadline is 10/15 for removal or recharacterization of your 2019 contribution as that would eliminate the 2019 excise tax or that year's contribution, but you would still owe for older excess amounts that remained in your IRA at the end of 2019.

Re: Over-contributed to ROth IRA

Posted: Thu Sep 17, 2020 5:43 pm
by NoRisk
Thank you for the clarification. I am very surprised that she did not warn me considering that she knows my family 20+ years and is familiar with my savings strategy. On the other hand, I should have paid attention to the rising income.

Re: Over-contributed to ROth IRA

Posted: Thu Sep 17, 2020 6:15 pm
by David Jay
NoRisk wrote: Thu Sep 17, 2020 10:48 amWhat do you say about the situation?
TurboTax program (HR Block, TaxAct, etc.) doesn't make those kinds of mistakes and is a lot less expensive.

Re: Over-contributed to ROth IRA

Posted: Thu Sep 17, 2020 6:55 pm
by NoRisk
I was thinking about TurboTax as well , especially since my accountant is brushing me off since February about the over-contribution for the past few years. I will look into Turbo Tax now. What is the "best" software on the market now? Can it handle SOLO (401) K contributions?

Re: Over-contributed to ROth IRA

Posted: Fri Sep 18, 2020 9:31 am
by Katietsu
All of the most popular software programs should be able to handle the solo 401k. TurboTax is the most expensive but it really is the easiest to use and the most problem free, in my opinion.

Re: Over-contributed to ROth IRA

Posted: Fri Sep 18, 2020 5:52 pm
by David Jay
NoRisk wrote: Thu Sep 17, 2020 6:55 pm I was thinking about TurboTax as well , especially since my accountant is brushing me off since February about the over-contribution for the past few years. I will look into Turbo Tax now. What is the "best" software on the market now? Can it handle SOLO (401) K contributions?
They have various levels, but even the "full boat" Home and Business lists for only $120 and includes a state download.

Re: Over-contributed to ROth IRA

Posted: Sun Sep 20, 2020 9:08 pm
by NoRisk
Thank you all! Turbo Tax it is!