Quick question regarding undoing IRA contribution and taxes

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red5
Posts: 794
Joined: Sun Apr 01, 2012 4:42 pm

Quick question regarding undoing IRA contribution and taxes

Post by red5 » Tue Jun 30, 2020 4:56 am

If someone reverses their Roth IRA contribution for 2019 and 2020 (already in process) how are taxes affected?

Getting the Roth contribution money back shouldn't affect personal income. The contribution for 2019 was never included in any way on the 2019 tax form 1040.

There may be some small gains associated with those contributions along with a 10% penalty. I'm under the understanding that the 2019 gains would have to be included on the 2019 tax form even though they will be received in 2020. Thus an amendment will be required. Not a big deal just want to make sure this is right. Would the amendment include IRS form 5329 and form 8606?

Next tax season, would one also include forms 5329 and 8606 along with the regular form 1040 to show the reversal of the 2020 Roth contributions and any gains associated with that?

I received help on this a while ago as part of a larger issue but I just want to make sure I have this correct. Thank you.

whyamihere
Posts: 35
Joined: Sun Oct 22, 2017 4:55 pm

Re: Quick question regarding undoing IRA contribution and taxes

Post by whyamihere » Tue Jun 30, 2020 6:04 am

red5 wrote:
Tue Jun 30, 2020 4:56 am
If someone reverses their Roth IRA contribution for 2019 and 2020 (already in process) how are taxes affected?

Getting the Roth contribution money back shouldn't affect personal income. The contribution for 2019 was never included in any way on the 2019 tax form 1040.

There may be some small gains associated with those contributions along with a 10% penalty. I'm under the understanding that the 2019 gains would have to be included on the 2019 tax form even though they will be received in 2020. Thus an amendment will be required. Not a big deal just want to make sure this is right. Would the amendment include IRS form 5329 and form 8606?

Next tax season, would one also include forms 5329 and 8606 along with the regular form 1040 to show the reversal of the 2020 Roth contributions and any gains associated with that?

I received help on this a while ago as part of a larger issue but I just want to make sure I have this correct. Thank you.
If you're talking recharacterization of a conversion you're out of luck: https://www.irs.gov/retirement-plans/ir ... racterized

You might be talking about removal of excess Roth contributions or a recharacterization of a contribution you could have some avenues open to fix the mistake. Since you said contribution I'm hoping it's not a conversion (often confused one for the other).

I'll let someone else chime in on your specific questions on forms.
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Topic Author
red5
Posts: 794
Joined: Sun Apr 01, 2012 4:42 pm

Re: Quick question regarding undoing IRA contribution and taxes

Post by red5 » Tue Jun 30, 2020 7:44 am

Than you. I should have been more clear in the original post. It's a reversal of an excess contribution. The process has already begun with the investment manager (this is all for a friend).

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