Excess Roth Contribution - 2018

[DTH]

Taxpayer found out that his AGI was too much to make a Roth contribution for 2018 and has an excess contribution of $4,000.  He filed his 2018 income tax return on time, but there wasn't enough time to get the excess out by 4/15/19. Trying to decide to take a distribution or change the contribution to 2019.

If he takes the distribution there is no 2018 income tax affect because he already paid income taxes on the $4,000. I think the earnings would be taxable in 2019, year of distribution. In this case I think he needs to re-file his 2018 income taxes to show the $4,000 excess.

If he changes the contribution to 2019, I think he would still need to re-file his 2018 income tax return because it would still constitute a distribution. 

Is there a way to fix this without having to re-file his income taxes. Thank you.

[Appleby]

On 4/26/2019 at 5:01 PM, DTH said:

Taxpayer found out that his AGI was too much to make a Roth contribution for 2018 and has an excess contribution of $4,000.  He filed his 2018 income tax return on time, but there wasn't enough time to get the excess out by 4/15/19. Trying to decide to take a distribution or change the contribution to 2019.

If he takes the distribution there is no 2018 income tax affect because he already paid income taxes on the $4,000. I think the earnings would be taxable in 2019, year of distribution. In this case I think he needs to re-file his 2018 income taxes to show the $4,000 excess.

If he changes the contribution to 2019, I think he would still need to re-file his 2018 income tax return because it would still constitute a distribution. 

Is there a way to fix this without having to re-file his income taxes. Thank you.

• Since he filed his return by the due date, he has until October 15 to correct the excess.
• Any earnings would be taxable the year of the contribution.
• He cannot change it to 2019. But, if he leaves it in the account past the correction deadline, it automatically becomes a 2019 contribution and he would owe the IRS a 6% excise tax for 2018  ( The excise tax would continue to apply for every year it remains as an excess . For instance, if he is still ineligible 2019, then it would be an excess for 2019 and the 6% excise tax would apply for 2019).
• An amended return would be required only if earnings needs to be added to his 2018 income.
• Remember that he can recahracterize it to a traditional IRA as a 2018 contribution, as long as he was under age 70 1/2 as of 12/31/2018.  If it is treated as nondeductible, Form 8606 would need to be filed.