Excess contribution

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Topic Author
noobtoinvesting
Posts: 24
Joined: Mon Oct 09, 2017 11:08 am

Excess contribution

Post by noobtoinvesting »

Hey
need some help

I made excess contribution in my roth account from 2011 to 2014 for total of 21k and made 3k so total was 24k,
I removed the excess contribution (whole 24k) in 2018 and rcvd 1099 form with code JP and taxable amt of 3k in box 2a.

I did not pay any taxes for 3k last year as my CPA did not advise and my new CPA this year thinks that i should paid last year.

any help or guide would be appreciated.
Spirit Rider
Posts: 13977
Joined: Fri Mar 02, 2007 2:39 pm

Re: Excess contribution

Post by Spirit Rider »

Assuming that this was a Roth IRA account:
  • They are both wrong and this will be a painful mess.
  • You should not have removed the earnings, they could have stayed in the plan untaxed and it might have been possible to leave some of the contributions.
  • There was a 6% excise tax due on Form 5329 for each year there was an excess contribution balance on 12/31. There is no statute of limitations for failure to file Form 5329.
  • You will have to file a Form 5329 for each year, pay the 6% excise tax and carry the excess contribution balance forward each year. For example, let's assume it is $5K * 4 years = $20K. There will be a 2011 excess contribution balance $5K * 6% = $300, 2012 $5K + $5K = $10K * 6% = $600, 2013 $10K + $5K = $15K * 6% = $900, 2014 = $15K + $5K = $20K * 6% = $1200, 2015 = $1200, 2016 = $1200, 2017 = $1200, 2018 = $0 for a total of $6600. The IRS may assess penalties and interest.
  • The only hope is if you had any available Roth contribution space in 2015 - 2017. For each year you can apply the available contribution space to the excess contribution balance. The excess contribution balance and excise tax will be reduced.
  • The distribution was in 2018, so it will be reported and taxed for 2018. The taxable portion will be subject to ordinary income taxes and likely the 10% early withdrawal penalty
Why oh why are so many CPAs clueless about retirement contributions.
Topic Author
noobtoinvesting
Posts: 24
Joined: Mon Oct 09, 2017 11:08 am

Re: Excess contribution

Post by noobtoinvesting »

no there is no space for any roth contributions. i was never eligible due to my income. my new cpa is advising me to add new taxable item for 3k and pay taxes on it and move on.
Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Excess contribution

Post by Spirit Rider »

You better make sure your CPA is aware of the fact that there is NO SOL on Form 5329. The IRS can come after you decades in the future for the unpaid excise taxes, penalties and interest.

You can do whatever you want, but make no mistake about it. Your CPA is advising tax evasion.
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Epsilon Delta
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Re: Excess contribution

Post by Epsilon Delta »

Spirit Rider wrote: Wed Mar 27, 2019 7:40 pm You can do whatever you want, but make no mistake about it. Your CPA is advising tax evasion.
Consulting a CPA in good faith and getting the wrong answer is not tax evasion.
Being a clueless CPA is also not tax evasion.

Both are bad, and can get you into quite a bit of trouble, but not quite as much as tax evasion.
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LadyGeek
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Re: Excess contribution

Post by LadyGeek »

I removed an interchange regarding the definition of tax evasion. The discussion was getting contentious. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
The point and counterpoint have been made, let's move on.

Please state your concerns in a civil, factual manner.
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Alan S.
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Re: Excess contribution

Post by Alan S. »

noobtoinvesting wrote: Wed Mar 27, 2019 1:26 pm Hey
need some help

I made excess contribution in my roth account from 2011 to 2014 for total of 21k and made 3k so total was 24k,
I removed the excess contribution (whole 24k) in 2018 and rcvd 1099 form with code JP and taxable amt of 3k in box 2a.

I did not pay any taxes for 3k last year as my CPA did not advise and my new CPA this year thinks that i should paid last year.

any help or guide would be appreciated.
In addition to what you have already been told, there is something else awry here. The distribution code should just be J, not JP. The P code only applies to corrective distributions by the due date including earnings. It looks like the custodian treated the total excess amount of 24k as a 2017 excess contribution of 24k!! That makes no sense whatsoever.

When excess amounts are removed after the due date without earnings, the only request from the custodian would be to simply distribute 21k and not even mention excess contributions or specific years. The earnings should not have been distributed because all these excess contributions were removed well after the due date. The 1099R should just have code J and typically the 21k that should have been distributed would come from your balance of regular Roth contributions, and therefore would generate 0 income tax on Form 8606.

Before doing anything else, do you recall what you told the custodian, and also what type of custodian is this (bank, broker, mutual fund??)
Did the CPA tell you what to request from the custodian?

Since you have apparently filed your 2018 taxes without including the 3k as income, the IRS will eventually send an inquiry. And while the 3k should not have been distributed if the corrective distribution was handled correctly, now that it has been it cannot be rolled back. It will be a real hassle, but I would try to get the custodian to correct the 1099R to just code J, which would be correct. If you have 24k of basis in your Roth, this would eliminate tax and penalty on the 3k.

In summary, the entire situation went awry and everyone involved seems to have a hand in it...………..
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