Permalink Submitted by Alan - IRA critic on Tue, 2020-10-13 16:14
The excess contribution must be removed with allocated earnings by the extended due date for the 2019 tax return, which is 10/15/2020 to avoid the 6% excise tax for 2020. Any earnings on the excess are taxable and possibly subject to penalty in the year the contribution was made. The taxpayer needs to act today to try to get this done, but with some custodians it may be too late.
Taxpayer can only use the extended due date of 10/15 if they filed an extension or filed their 2019 return on time (7/15/2020).
Taxpayer can opt (or may have no choice) to leave the excess amount in the IRA and apply it to their 2020 contribution. If that is done any earnings on the excess remain in the Roth, but the 6% excise tax is owed for 2019. If the excess cannot be applied to 2020, it must be removed (without earnings) before year end to avoid another excise tax of 6% for 2020.
Permalink Submitted by Alan - IRA critic on Tue, 2020-10-13 16:14