In January 2007 I learned there was a income limitation to contribute to a Roth IRA and exceed it in 2005 and 2006 and will in 2007. I requested Fidelity withdraw the contributions and any earnings which they did:
I am doing my 2006 taxes now. What form numbers and line numbers do I report all these excess contributions/earnings and what penalties/taxes do I need to pay? Thanks!
I'm assuming that the 2005 contribution shows no earnings because they were lumped with the 2006 earnings. That threw me at first, but it makes sense. Since you didn't correct the 2005 excess by the extended due date of your 2005 return it carries over as an excess to 2006. Thus, you wound up with an $8,000 excess for 2006, which you are correcting by the extended due date. Here's what you do, year by year:
2005 File a 2005 Form 5329, Part IV, by itself. You can get prior year forms at
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You'll pay the $240 penalty with that form. They'll bill you for the interest.
2006 Include the $300 earnings on line 15b of your 1040. You'll owe a $30 penalty on line 60 of the 1040.
2007 You'll report the $100 earnings and $10 penalty on your 2007 return you file next year. IRS Publication 590 is your reference.
A note about 1099-R's. You won't get anything before January 2008. If you're using tax software, just dummy up a
2006 1099-R entry showing $300 in boxes 1 and 2a, "1" in box
7, and check the IRA box next to box 7.
Don't know if it matters as far as what I need to do but my understanding is the $300 earnings in 2006 were all from
2006. I think they told me the reason they did not take out any earnings from 2005 was because I did not correct the
2005 excess contribution by the extended due date and thus any earnings get left in there.
Ok, do I also need to file an amended 1040 (1040x) with that
2005 form 5329? Also I thought I read somewhere that I have to pay the 6% penalty for each year that the excess contribution was left in there, is that correct? The $4000 contirbution was in for part of 2005, all of 2006 and the first few weeks of 2007. If this is the case, do I file 3 separate 5329s or pay for all three years on the first one?
Ok, do I need to file a 5329 or 8606 for 2006 or 2007?
It basically works out the same. What's being distributed in correcting the 2006 excess contribution is earnings on the full $8,000.
No.
Kinda, sorta, not really. The excess gets penalized if not corrected by the extended due date of your return for the calendar year. In your case you'll have it fixed so the penalty doesn't apply for 2006.
Not for 2006. Have to wait and see how your 1099-R's are coded for 2007 to see exactly what you'll need to do on that one.
Thank you very much for the information you provided. I'm in a similar situation with my Roth IRA this year, and your advice was invaluable. I really appreciate you taking the time to answer Jeff's question.
The only thing I wanted to add was that I think your instructions for the "dummied up" 1099-R form were for a traditional IRA , not a Roth IRA:
The 2007 instructions for a 1099-R (page R-7, under the "Box 2a" section, "Roth IRA" sub-heading") say to enter code J and code 8 or P in box 7. It also says *not* to check the IRA box for a Roth IRA. (Page R-8, under "Box 7".)
I also think it suggests putting the full distribution (i.e., $4000 + $300 in Jeff's case) in box 1, with (as you said) the $300 earnings in box 2a, but I don't know for sure.
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