ROTH Excess Contribution

Technical topics regarding tax preparation.
#1
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444
Joined:
16-Jan-2015 12:54pm
Location:
Chicago
Client has been making contributions to ROTH IRAs for 2021 and 2022 but is over the income limit.

Both 2021 and 2022 contributions will be withdrawn (plus potential earnings) for both years prior to 4/15/2023. This resolves the issue with the 2022 contribution.

For the 2021 excess contribution it appears that they need to file an amended 2021 return to account for the associated penalty. And then pay the penalty again on the 2022 return, as the contribution was not withdrawn in 2022.

Any chance that they don't have to pay the 2022 penalty on the 2021 excess contribution if the amount is withdrawn prior to 4/15/2023? Or did this need to be withdrawn by 12/31/2022 to avoid the penalty?
 

#2
Posts:
1121
Joined:
12-May-2021 11:01am
Location:
Alabama
Because the 2021 excess was not withdrawn by 12/31/2022, therefore they owe the 6% penalty tax on it on the 2022 Form 5329. But they only have to withdraw the amount contributed, they don't have to withdraw earnings.

But they've got until 4/18/2023 (10/16/2023 if they have an extension) to withdraw the 2022 excess (plus earnings).
 


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