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Reporting earnings on excess ROTH contributions for 5 years

csanchez
Level 3

Client has excess ROTH contributions for 2016-2019. Excess contributions are being withdrawn in July 2021.I have completed the 5329 for each year including 2020.

If the client withdraws all the earnings in order to close account, client is subject to 10% penalty since client is under age 59 1/2. My question is do I report all earnings on 2021 tax return when we receive the 1099-R or does each year have to be amended for earnings in that year?

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George4Tacks
Level 15

Report earnings received in the year they are received. 


ex-AllStar

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9 Replies 9
qbteachmt
Level 15

See if this article helps, since it has a lot of info:

https://ttlc.intuit.com/community/retirement/discussion/multiple-years-of-roth-ira-excess-contributi...

 

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"Level Up" is a gaming function, not a real life function.
csanchez
Level 3

This link was very helpful - thank you. 

If client wants to withdraw all earnings & close the account, will prior year earnings be taxable if 5329 has been filed for those years & excess contributions have been withdrawn? Just still not clear if earnings are taxable & if so in year received or earned?

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qbteachmt
Level 15

Earnings on Excess Roth will be taxable as ordinary income; there also is the 10% penalty for early withdrawal if they are under 59 1/2. They are taxable because there is no basis in these amounts.

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"Level Up" is a gaming function, not a real life function.
csanchez
Level 3

Will the earnings need to be reported on amended returns for each year it was earned or just once in total on the current tax return?

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qbteachmt
Level 15

The withdrawal.

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"Level Up" is a gaming function, not a real life function.
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csanchez
Level 3

Report earnings in year of withdrawal, correct?

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qbteachmt
Level 15

You have multiple reporting: 6% penalty, early distribution, income tax on the earnings.

Are you using the web at all, or simply asking everything here?

I like these articles that are not written by the IRS, but you should also be using Pubs 590-A and -B, of course:

https://www.investopedia.com/articles/retirement/04/042804.asp#how-to-fix-an-excess-ira-contribution

https://www.taxact.com/support/1280/2016/ira-or-roth-ira-excess-contributions

 

Also, all of the investment brokerages provide reference materials: Merril Lynch, Wells Fargo, Schwab, etc.

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"Level Up" is a gaming function, not a real life function.
csanchez
Level 3

Thank you for your reply. Yes I have researched this topic. My only outstanding question is to report the earnings withdrawn on the current year or amend each year?

 

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George4Tacks
Level 15

Report earnings received in the year they are received. 


ex-AllStar

View solution in original post