qbteachmt
Level 15

"How should I advise the client to handle the prior year contributions?"

Read Pub 590A. And, I find that consumer articles work well for this:

https://www.investopedia.com/articles/retirement/04/042804.asp

https://www.thetaxadviser.com/issues/2020/apr/correcting-excess-contributions-iras.html

https://www.irahelp.com/forum-post/39031-calculation-earnings-excess-roth-ira-contributions-multiple...

https://www.fool.com/retirement/plans/roth-ira/excess-contribution/

 

There are many options, including allocating an earlier year's overage to the next year, etc, until it all gets "used up."

Your recharacterization is to nondeductible Traditional IRA, so you don't intend to amend any previous years?

There is a 6% tax and the excess for every year it was put into and left in the account, as well as tax every year on the earnings (prior earnings continue to be taxed, along with new earnings) until this all gets removed such as Corrective Distribution.

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