Calculation of Earnings on Excess Roth IRA contributions from multiple prior "closed" years | Ed Slott and Company, LLC

Calculation of Earnings on Excess Roth IRA contributions from multiple prior "closed" years

Do you have to calculate the earnings on excess contributions each year the excess Roth contributions remain in the account and pay tax based on that year's tax rates even though the funds will not be pulled out until the current year? I understand I will need to file amended tax returns with Forms 5329 to pay the 6% excise tax for each year that the excess Roth contributions remain in the account. Will I include the earnings on excess contributions on those amended returns?

If so, how would I handle loss years?

How would the penalty for the earnings be reported?

Thank you.

It is much easier than that. Once the due date to remove excess contributions with earnings has passed, earnings are no longer tracked or distributed. They remain in the IRA.  The 6% excise tax is mutually exclusive with removal of earnings. Therefore, all earnings remain in the account once the due date has passed, and no calculations are done. If the excess is to be distributed, just request the dollar amount of the excess to be distributed, do not even mention to the custodian that the amount you want distributed is an excess contribution. This will be reported on Form 1099R just like a normal or early distribution.

Do you have to report  earnings from excess ROTH contributions in a closed year?  

Do you have to report income from excess ROTH contributions in a closed year?  

No. If the tax year is closed, then the due date to remove excess contributions with earnings has passed and the 6% excise tax may be due for multiple years. Earnings remain in the Roth IRA. Removal of the excess contribution amount to put an end to the excise taxes does not include any earnings, just the excess amount. 

 

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