Multi-years excess contributions to Roth IRA

Submitted by Jomie Blumreich on Sun, 2019-10-13 04:33

Client is a graduate student, received fellowship from a University. In Jan, 2019, discovered that since 2013, 2014, 2017 & 2018 fellowship payments were not reported on Box 1, Form W-2, thus, they should not have been considered as compensation for IRA purpose.

This in turn resulted – excess contributions to Roth IRA – $5,000 (2013), $5,500 (2014), $5,500 (2017) and $5,500 (2018)

On 4-12-19, Client withdrew (a) the excess Roth IRA Contributions of 2013, 2014 and 2017 in the amount of $16,000 (b) 2018 excess contribution $4,642.80 (the FMV of 2018 $5,500 contribution)

I am filing amended tax returns with Form 5329 for 2013, 2014, 2015, 2016 and 2017 to report the additional 6% tax owed on the excess contributions.

No 2018 Form 1099-R was issued by the Brokerage/Trustee. Client told me that they earmarked his withdrawal as removal of excess contributions. Question #1 – Since client withdrew the excess in 2019, it made sense that no 2018 1099R was issued. I need to wait till 2019 tax return to report the net income attributable – excess contributions, correct? It is most likely, I will have to do the calculation.

Question #2 – on the 2018 tax return – No Form 5329, correct? Since client withdrew the excess Roth Contributions on 4-12-19, before the extended due date of 2018 tax return,10-15-19. which should have cured 2013, 2014, 2017 and 2018 excess contributions.

I appreciate any insight and help. Thank you.



Submitted by David Mertz on Sun, 2019-10-13 13:41

  1.  If the account suffered a loss while the $5,500 contribution for 2018 was in the account, there is no taxable gain to be reported.  The only thing needed with regard to the 2018 contribution and its return is an explanation statement with the 2018 tax return describing the $5,500 contribution and the return of the entire contribution by a loss-adjusted distribution of $4,642.80.  (Note that the loss adjustment should have been calculated over the investment performance of the entire account during the period the 2018 contribution was in the account, not just the particular investment the $5,500 was put into if invested differently than the rest of the account.)
  2. The tax return due date is relevant only to the return of the 2018 contribution, the only one of these contributions being corrected before the due date of the tax return for the year for which the contribution was made.  Because the excess contributions made for 2013, 2014 and 2017 were not corrected before the end of 2018, 2018 Form 5329 is required to show the $16,000 excess carried in from the 2017 Form 5329 and the 6%, $960 penalty for 2018.  The client’s 2019 Form 5329 will show the $16,000 excess carried in from 2018 and the $16,000 regular distribution (code J, reported separately from the code JP distribution that reports the return of the contribution made for 2018) that brings the excess contributions for 2018 to zero.  The 2019 tax return will also show Form 8606 to report the regular distribution of $16,000, nontaxable because it is a distribution of contribution basis.


Submitted by Jomie Blumreich on Sun, 2019-10-13 21:20

Yes, thank you for your clarification that a form 5329 needs to be filed for the 2018 tax return for the excess contributions of 2013, 2014 & 2017, since the withdrawal did not happen until after 12/31/18. I sincerely apprecite your note on the loss adjustment that should have been calculated over the investment performance of the entire account during the period of 2018.  I will make more inquiries to the client how the $4,642.80 was determined. I have a question on calculating the earnings attributable to the excess contributions, which is taxable and subject to 10% penalty. Question #1 – Do you think the Broker/Trustee will calculate this? and where would be shown on (2019) Form 1099-R?  I have gone over the formula a zillion time, it is still not sinking in.  To make this more complicated was the client made 2015 and 2016 Roth IRA contributions at $5,500 each, since he had W-2, Box 1 income in 2015 and 2016, these were qualified Roth IRA Contributions.Question #2 – It appears, the adjusted opening balance would be the total amount of contribution made ( 2013 – excess $5,000 + 2014 – excess $5,500 + 2015 – $5,500 + 2016 – $5,500 + 2017- excess $5,500 = $27,000. The Adjusted closing balance would be the the FMV at the end of the computation period (prior to withdrawal of the excess?) The Excess contribution would be $16,000 (2013 $5,000 + 2014 $5,500 +2017 $5,500). Question #3 – what infomation I need to gather gearing up for this calculation ?? I am hoping I am on the right track.  Thank you for taking your time at this very busy time ( 2days before 10/15) to answer my questios.  A BIG THANK YOU.    



Submitted by Alan - IRA critic on Sun, 2019-10-13 22:52

  1. Since the return of the 2018 excess has been processed, the broker has determined that there was a loss on the excess contribution of several hundred dollars. That said, when both the excess amount after the due date is returned on the same day as the 2018 excess, the broker must treat one of these transactions as being done first. It is not clear which they processed first, but that decision would affect the amount returned with the 2018 excess. A separate 1099R will be processed for return of the 2018 excess showing the 4642 distribution coded as DMx indicated. The fact that contributions were allowed in 2015 and 2016 is irrelevant.
  2. As you pointed out, the adjusted closing balance was affected by the order in which these two distributions were processed.
  3. Since the 2018 return was processed, the custodian has completed their calculation. They could have done it either way. The client will not have to make their own calculation unless they want to challenge the custodian before the 1099R is issued. However, returning less than the contribution is favorable to the client.


Submitted by David Mertz on Sun, 2019-10-13 23:44

  • The order of distributions does not matter.  If the distribution of the excess contributions for 2013, 2014 and 2017 was made before the return of the 2018 excess contribution, the amount of the distribution of the excess contributions for 2013, 2014 and 2017 must be added back to the account balance to come up with the adjusted closing balance used to calculate the loss attributable to the 2018 excess contribution.  This means that the result is the same no matter which distribution is done first.
  • See 26 CFR § 1.408-11(b)(2):  https://www.law.cornell.edu/cfr/text/26/1.408-11


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