Roth IRA excess contrib + rechar: multi-year IRS corrections

Submitted by Justin Fuhs on Sun, 2019-02-17 20:05

I have already filed my 2018 taxes. I just realized that I have been making excess Roth IRA contributions since 2016, when my MAGI passed the Roth income limit. I completed the following corrective steps with my Roth custodian first: Took Excess Contribution distributions for 2016 and 2017, and recharacterized 2018 contribution (+ NIA) into new traditional IRA account.

I’m confused about what must be done with IRS at this point, specifically:
1. I know I owe 6% penalty on the 2016 and 2017 excess contributions, and understand filing year-specific Form 5329 for 2016 and 2017. Do I also need to file Form 5329 for 2018 since the 2016 and 2017 excess contributions were in the Roth account for entirety of 2018? And if I do file 5329 for 2018, even then I’m only reporting (and paying 6% penalty on) the 2016 and 2017 excesses but not 2018, correct?
2. Logistically, when filing form 5329 for 2016, 2017, and I’m guessing 2018, should I mail each one separately with separate check for payment? Or can I mail altogether and/or include single check for multi-year penalty payment?
3. Do I need to do anything more now for the 2018 recharacterization? Am I required to file amended 1040 for 2018? My initial thought is that I file 2018 1040x and attach both 5329 for 2018 and 8606 for 2018 – is that correct?
4. As I have the 2016 and 2017 excess distributions as cash on hand now, I am fine to max out my 2019 contribution limit in the new Traditional IRA with that cash, correct?
5. Do any of my corrective filings to the IRS require accompanying documentation from the Roth custodian? Must I wait for forms from the custodian before filing?

Appreciate any guidance from those who have done these things before. Am I crazy to think it should be possible to make necessary corrections, filings, and penalty payments in this case on my own (i.e. without direct assistance from accountant or tax advisor?)



Submitted by Alan - IRA critic on Sun, 2019-02-17 21:24

  1. I assume that the distribution and recharacterization was done in 2019. Yes, you need to file Form 5329 for 2018 to pay the 6% excise tax for the total of your 2016 and 2017 excess contributions, but not for 2018 because you recharacterized that contribution to a TIRA.  Since a 5329 is treated as an independent return you can file it by itself along with the 2016 and 2017 forms.
  2.  You can mail the 5329 forms together in a single envelop with combined check.
  3.  Not required, but preferable to file a 2018 1040X to include an explanatory statement regarding the recharacterized 2018 contribution as well as attaching the 5329 for 2018 to the 1040X. You don’t need an 8606 for these transactions unless there is a need for unrelated reason like making a ND contribution.
  4.  You can use the recently distributed funds for anything you wish including a 2019 contribution that are are eligible for.
  5. No. The IRS has the Form 5498 forms showing the original contributions, and they will get a 1099R/5498 for the 2019 recharacterization of the 2018 contribution next January. Your explanatory statement will tell the IRS what they need to know about your 2018 contribution in the meantime.
  6. You should be able to do this yourself. You may already know as much about this as the average tax preparer. If you run into further questions, you can always post them here.


Submitted by Justin Fuhs on Sun, 2019-02-17 21:41

Yes, the excess contribution distributions (for 2016 and 2017) and recharacterization (for 2018) were completed in 2019, after I filed my 2018 return. Isn’t the recharacterization deposit into the new TIRA defined as a non-deductible contribution for 2018 and thus require the 8606?  If going forward I continue to contribute to the TIRA (and assume such contributions will always be non-deductible), my read was that I’ll always be attaching the 8606 to my 1040 from now on. Can all forms for filing (3 separate 5329s for 2016-2018, 1040X for 2018, and (depending on answer to question just above) 8606 for 2018) be mailed to IRS at once with one check for the 2016-18 6% payments?  Or safer to send separately somehow?Thanks again.



Submitted by Alan - IRA critic on Mon, 2019-02-18 02:23

  • Yes, you are correct that if the recharacterized Roth contribution is non deductible as a TIRA contribution the 8606 is needed to report it and will be needed for all years in which you either make a non deductible TIRA contribution or do a conversion. 
  • I would send the 1040X with attached 5329 and 8606 in a separate envelope from the 2 other 5329 forms and send the 2 5329 forms in about a month before the 1040 X because the older 5329s determine what goes on the later (2018) 5329. Send the applicable checks with the related envelope and forms.


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