Excess Roth contributions

CPA approached me for help. CPA’s client has a 401k that they have been funding. Their advisor recommended they set up a Roth IRA account as well. They did, and fully funded it. CPA is doing their taxes, and they are above the limit for income in 2021 to do a Roth IRA. CPA is now wondering if they can still move the Roth money to a non-deductible IRA.

When CPA brought this up to client, client said I have been doing the Roth for 3 years already, so did it for 2019, 2020, and 2021. CPA had no idea. Now CPA is looking at penalties, distributing assets, and filing amended returns.

Any options?

Thanks.



  • Client should have told the CPA each year those Roth contributions were made, and they could have either been removed by the deadline or recharacterized as non deductible TIRA contribution. The following assumes that client  will continue to be ineligible for 2022 and beyond to make regular Roth contributions.
  • The 2021 Roth contribution can still be either removed with earnings (or net of losses). or recharacterized assuming a timely extension was filed by 4/17/2022. If client has no pre tax IRA accounts, a back door Roth could be done by recharacterizing the 2021 excess and then converting the TIRA. An 8606 would have to be filed reporting the ND contribution for 2021.
  • The 2019 and 2020 deadlines have passed for the above treatment. A 5329 must be filed for each year to report the excess and pay the 6% penalty. This might be done without a 1040X, but it would be safer to file the 5329 with a 1040X. Excise tax would be based on 6000 (or what was contributed) for 2019, 12000 for 2020 and 12,000 for 2021. Adds up to 1800 in excise taxes. 
  • For the 2021 return, the 5329 can be filed with the extended return, and an explanatory statement should be included describing what was done with the 2021 excess contribution. If removed, it is probably underwater meaning that no earnings on any removal will be taxable in 2021, if 2021 was the year in which the 2021 contribution was made. 
  • The total excess amount must be withdrawn (2019, 2020) by the end of 2022 to avoid another year of excise taxes. The 2021 excess must be removed net of earnings or recharacterized. Return of the excess will generate a 1099R next January, but should be non taxable as removal comes from the Roth regular contribution balance. For 2019 and 2020, any gains remain in the Roth, as the excise tax will be due instead.


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