Excess contribution/earnings absorption fix questions | Ed Slott and Company, LLC

Excess contribution/earnings absorption fix questions

For 2017 and 2018 I put in too much into a Roth IRA for my son (a minor). It totals a whopping $6.00 in penalties so this is not a really big emergency, just miffed at myself. My first question is to double check that since I opted to use the absorption method for 2019, and the entire excess was absorbed, that I do not have to take out any of the earnings, or anything that the earnings may have earned, at all.
I understood it to be that the 6% excess penalty per year allows him to keep the earnings on 2017 and 2018 (and any earnings those earnings make later on) and that the absorption of the excess in 2019 counts as if it were a normal 2019 contribution and takes care of the excess, so no need to withdraw earnings there either. You just show that everything has cycled out on form 5329 for 2019. I don't have to take out ANYTHING AT ALL. Am I understanding it correctly?

Second part is that my accountant has done the paperwork on form 5329 for years 2017 and 2018. The form 5329 for theses years does not have the amendment box checked since that form has never been filed for those years, and they are attached to amendment form 1040x for their respective years. I'd like to make sure that all makes sense.
I know I have to sign the 1040x forms. Do I have to sign the 5329 forms as well or leave them blank since it would be covered under the 1040x signature? The accountant left the home address at the top and signature/paid preparer sections at the bottom blank for form 5329. Instructions on form 5329 say you don't have to sign if it is filed with your tax return, but I don't know if an amendment 1040x counts as a you can leave stuff blank return or not. I just don't want extra letters from the IRS saying they rejected things and then me having to reprint and mail again.

Thanks.

  • Yes, your understanding regarding the earnings are correct. They stay in the account and only the excess contribution amounts for 2017 and 2018 are absorbed per the 2019 5329.  The 6% excise tax for a year is mutually exclusive with the distribution of earnings, so only the small excise tax is due for those 2 years.
  • A 5329 is a return in it's own right and a 1040X is not necessary. But every so often the IRS will request it anyway, so if one has been prepared it's OK. However, being charged for an unnecessary 1040X is discouraging. If a 1040X accompanies each 5329, the 5329 does not have to be signed, but if convenient I would sign them anyway as there is no downside from duplicate signatures.
 

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