Roth IRA

Submitted by Kerwyn Welch on Tue, 2021-03-30 15:49

My company made a duplicate payment of $6,679.25 on January 13, 2021 into my Roth IRA Account. The first payment was made in December of 2020. I want to know what are the tax liabilities I face for returning the duplicate payment the total in the Roth IRA is $120, 535.9.

Thanks.



Submitted by Alan - IRA critic on Tue, 2021-03-30 15:54

Is the January contribution identified as a 2021 Roth contribution or a 2020 contribution? If 2020, then you have a 2020 excess contribution, but if the Jan contribution is for 2021, it probably is not an excess contribution unless your 2021 income turns out to be too high. Check your Roth statement to verify the contribution year for the Jan contribution and post back here for how to handle it.



Submitted by Kerwyn Welch on Wed, 2021-03-31 16:39

it was a 2020 contribution that was inadvertently paid twice.  It is not a 2021 Roth Contribution.  The rollover was done as a direct rollover it was not a Roth Contribution and taxes were not withheld.   



Submitted by Alan - IRA critic on Wed, 2021-03-31 19:02

 So these were partial direct rollovers from your current or former employer plan, and you received a 1099R for only the one completed in 2020?  If this was all the employer plan error, have them send a letter to have the second rollover transferred back to the plan. OR  – to avoid a multiple transaction tax reporting mess, what are the consequences of just living with the rollover?  Is this pre tax money that was converted to a Roth IRA?



Submitted by Kerwyn Welch on Fri, 2021-04-09 12:35

I waiting for confirmation that the additional payment has been returned. This is pretax money that was converted to a Roth IRA.



Submitted by Kerwyn Welch on Mon, 2021-04-12 17:49

Regarding the initial payment for the year 2020, what are my tax liabilities for the $6,679.25?



Submitted by Alan - IRA critic on Mon, 2021-04-12 17:59

If this was from a pre tax employer plan and rolled into your Roth IRA, the taxable amount should show in Box 2a of your 1099R. The tax liability of this income can only be determined in conjuction with your total Form 1040 and your marginal tax rate. If you are in the 22% bracket plus 3% for state, then your tax liability would be 25% of the amount in Box 2a.



Submitted by Alan - IRA critic on Fri, 2021-04-09 15:13

If  either company has indicated they are working on it, give them some more time as they will need to contact the other company to have the duplicate transferred back. Check your plan statements frequently to look for the duplicate to be reversed and credited back to the correct account.



Submitted by Kerwyn Welch on Sat, 2021-04-17 15:35

I transferred the excess payment from my Roth Account to my checking account and sent a check back to my company, so the ecess payment has been returned.  I  need to know if I will incur any penalties for the excess payment and the  the original payment for tax year 2020.



Submitted by Alan - IRA critic on Sat, 2021-04-17 17:32

Not for 2020.  I assume you have a 1099R for 2020 showing 6679 in Box 2a and code G in Box 7. All the additional activity has been in 2021, so 2021 is the year you need to be concerned with. You need to get confirmation from your company that there will be no 2021 1099R since you returned the funds. However, your Roth IRA custodian is likely to report rollover contributions for both 2020 and 2021 on Form 5498. The 2020 one will be correct, but the 2021 (not to be issued until May, 2022) will create a mismatch at the IRS because they will have a reported rollover contribution from the 5498 which is not matched by a 1099R. But you do NOT want a 1099R since that will mean duplicate taxes in 2021. This is why it would have been better to allow more time to have the firms resolve this directly, since that would have eliminated both the 2021 1099R and the 2021 5498. 
You also took your own Roth IRA distribution of 6679 and that will also be reported on a Form 1099R by the Roth custodian. You will have to report it on your 2021 return on Form 8606, but it will not be taxable since it will come from your balance of regular Roth contributions under the ordering rules. 
In short, you will probably be OK in 2021 if your company does not issue another 1099R for the funds you returned. Suggest you contact them after they received your check and get assurance that there will be no 2021 1099R issued next January. As for the IRS mismatch from the Roth custodian 5498, good chance the IRS will miss it, but if they don’t explaining it to the IRS will be difficult, since the IRS would assume they are missing the 1099R you don’t want to be issued.



Submitted by Kerwyn Welch on Sun, 2021-04-25 18:28

I transferred the money to my account using the form “IRA Distribution Request for Withdreawl, Rollover or Return of Excess Contribution.” This was done at the request of the Trustee of my Employer’s Plan.  Does that make a difference?



Submitted by Alan - IRA critic on Sun, 2021-04-25 20:44

It could be a problem. Would have been better to just send a letter explaining that you are returning a duplicate distribution they made which should not have been done, and that they should not issue a 1099R for the second duplicate distribution or a 5498 reporting receipt of a rollover contribution. In fact, it is not even possible to roll a Roth IRA distribution into an employer plan.  Being an abnormal transaction, the employer plan must understand how to treat these funds. They are the ones that asked you to use this form which makes me wonder if they will handle it correctly. The form itself is not intended to be used for this situation, but if they understand why they are receiving these funds back, it should be OK.



Submitted by Kerwyn Welch on Fri, 2021-04-30 22:33

The form I used was from JP Morgan Securities  that’s where my Roth Account is located. To be clear, the Trustee advised me to make the payment to myself then return it to the Trustee which has been done. 



Submitted by Alan - IRA critic on Fri, 2021-04-30 23:54

I guess you won’t know until you can review a company statement to see how your repayment was applied. Your Roth custodian is probably going to issue a 1099R for this distribution, and if they do you will have to report it on your 2021 return. That said, if you have enough Roth IRA basis, it will not be taxable.



Submitted by Kerwyn Welch on Tue, 2021-05-04 20:10

I attached language from the Cash Benefit Plan that I rolled over into my Roth IRA.I”f you roll over your payment to a Roth IRAIf you roll over a payment from the Plan to a Roth IRA, a special rule applies under which the amount of thepayment rolled over (reduced by any after-tax amounts) will be taxed. However, the 10% additional income taxon early distributions will not apply (unless you take the amount rolled over out of the Roth IRA within 5 years,counting from January 1 of the year of the rollover).If you roll over the payment to a Roth IRA, later payments from the Roth IRA that are qualified distributionswill not be taxed (including earnings after the rollover). A qualified distribution from a Roth IRA is a paymentmade after you are age 59½ (or after your death or disability, or as a qualified first-time homebuyer distributionof up to $10,000) and after you have had a Roth IRA for at least 5 years. In applying this 5-year rule, you countfrom January 1 of the year for which your first contribution was made to a Roth IRA. Payments from the RothIRA that are not qualified distributions will be taxed to the extent of earnings after the rollover, including the10% additional income tax on early distributions (unless an exception applies). You do not have to takerequired minimum distributions from a Roth IRA during your lifetime. For more information, see IRSPublication 590-A, Contributions to Individual Retirement Arrangements (IRAs), and IRS Publication 590-B,Distributions from Individual Retirement Arrangements (IRAs).”Based on the foregoing, am I exempt from taxes for 2020? Can I defer paying taxes (Federal and State) to 2021 and if so which IRS Forms do I use?



Submitted by Alan - IRA critic on Tue, 2021-05-04 22:27

You will only be taxed for the Dec Roth rollover and should already have the 1099R for that. The rollover will be added to your other 2020 income and taxed at whatever rate your total 2020 return generates. This has nothing to do with the second duplicate payment.
The second duplicate payment was made in 2021 and you returned that amount to the plan. That should result in no 1099R being issued by the plan for 2021, so no taxes will be due. However, instead of having the company contact the Roth custodian to have the funds returned, you were told to take a Roth distribution and return the funds yourself. This was bad advice. First, you will get a 1099R from the Roth custodian for the distribution and will have to report it on Form 8606 for 2021. It will come from your Roth regular contribution balance so will likely be non taxable. It also leaves your Roth conversion balance 6679 higher than it should be and your regular contribution balance 6679 lower than it should be. This could hurt you if you need to take a Roth distribution of conversions not held 5 years.
Again, you will have to report the 1099R you already received for the Dec conversion. That goes directly on Form 1040, line 5. No other form is needed.



Submitted by Kerwyn Welch on Wed, 2021-05-05 15:05

Why isn’t my 2020 Rollover to my Roth IRA exempt? I have already filed my returns through TaxAct and the returns were already accepted. What are my options?



Submitted by Kerwyn Welch on Wed, 2021-05-05 15:06

Why isn’t my 2020 Rollover to my Roth IRA exempt? I have already filed my returns through TaxAct and the returns were already accepted. What are my options?



Submitted by Alan - IRA critic on Wed, 2021-05-05 16:34

You said you converted a pre tax plan to your Roth IRA. These are always taxable except to the extent you made after tax contributions to the employer plan. What does your 1099R indicate in Box 2a?



Submitted by Kerwyn Welch on Wed, 2021-05-05 18:13

The 1099R  in box 2a indicates $6, 679.25 that’s the same as the Gross Distribution in box 1. 



Submitted by Alan - IRA critic on Wed, 2021-05-05 18:18

Since the 1099R is not from an IRA, the Box 2a amount is the actual taxable amount as expected. The concept of a Roth rollover is that you pay taxes now to avoid them later and also to avoid RMDs. All gains in the Roth will be tax free if the Roth is held until it is qualified (5 years and age 59.5).
On the other hand, if you get a 1099R on an IRA distribution, the amount in box 2a is only an estimate since the IRA custodian has no idea how much is taxable. The taxpayer can file Form 8606 to apply any IRA basis from non deductible contributions and the 8606 calculates the actual taxable amount.



Submitted by Kerwyn Welch on Wed, 2021-05-05 21:33

So are you saying that I should filee Form 8606 to determine the amount of taxes that I have to pay on the amount rolled over into my Roth IRA?



Submitted by Alan - IRA critic on Wed, 2021-05-05 23:18

Only if the rollover comes from a TIRA. You stated earlier that these rollovers you have been doing have come from a pre tax employer plan like a 401k. If so, no 8606 is needed. The 1099R from the plan will show the taxable amount in Box 2a.



Submitted by Kerwyn Welch on Thu, 2021-05-06 17:00

So the 2020 rollover from the Cash Benefit Plan isn’t a contribution to my Roth IRA and I can’t use 8606 because it’s not a qualified retirement plan.



Submitted by Alan - IRA critic on Thu, 2021-05-06 17:46

Yes, Form 8606 does not apply because the funds are never in a TIRA. They went directly from the qualified cash balance plan to your Roth IRA. In that case, the plan computes the taxable amount and shows it in Box 2a of your 1099R. You should have that 1099R and you need it to report this rollover on lines 5a and 5b of Form 1040. No other forms are needed.



Submitted by Kerwyn Welch on Fri, 2021-05-07 14:00

Thanks you for clarifying what needs to be done. It is greatly appreciated.



Submitted by Kerwyn Welch on Sat, 2021-05-08 13:55

I am waiting for the Trustee of the Plan to get my the 1099R Form, and in all likelihood it won’t be before the May 17, 2021 deadline. Can I pay the taxes for my December 2020 rollerover unti the 2021. If so, what do I need to do?  



Submitted by Alan - IRA critic on Sat, 2021-05-08 16:19

Are you sure the 1099R was not lost in the mail?  It had to be mailed to you by 1/31/2021 for 2020. If the trustee has not done this, they are negligent and could be subject to IRS penalties. Or perhaps the tax reporting was overlooked due to the duplicate payment problem, which also sounds like a trustee error. However, you did receive a distribution (Roth rollover) in 2020, so you need to report it on your return with an explanatory statement. Another option is to file an extension by 5/17, pay what you think you owe, and get this resolved before filing the actual 2020 return by the extension deadline of 10/15. Unless you have another recent 1099 from this plan showing the EIN #, entering a dummy 1099R into a tax program could create a reject. It sounds like this plan needs to find a new plan administrator.



Submitted by Kerwyn Welch on Mon, 2021-05-10 14:22

I have the form 2020 1099R. However the box a has gross distribution of $13, 358.50 (reflecting both payments) but the box 2a for taxable amount has 0.00. What does this mean?



Submitted by Alan - IRA critic on Mon, 2021-05-10 14:37

What plan issued this 1099R, the company plan? What code is in Box 7?



Submitted by Kerwyn Welch on Mon, 2021-05-10 15:29

The Letter G is in Box 7. 



Submitted by Alan - IRA critic on Mon, 2021-05-10 16:04

Box 2a should be the same as Box 1 if the funds went to your Roth IRA. No idea why the form shows both distributions in 2020, as you said the second one was in error and made in 2021. 



Submitted by Kerwyn Welch on Mon, 2021-05-10 20:00

The Trustee is supposed to mail me a new 1099R showing only the 2020 distribution this Friday. What about the issue with box 2a and do I have to apply for an extension with the IRS?



Add new comment

Log in or register to post comments