Roth IRA Overcontribution

[@TravisSickle]

Here is the worksheet for the net income attributable for the Roth IRA. bit.ly/3aZi46u

[@matt3421]

Hi Travis, I have a few questions: 1) I have already put in $3400 in my Roth IRA for 2021 and I am almost positive I will be over the income limit by the time 2021 is over. Should I just remove the $3400 in excess contributions (and any growth) now to avoid the 6% fee on any additional growth? 2) If I had put the $3400 in my Roth IRA in several installments, would I have to calculate the NIA for each contribution and add them together to calculate a total NIA? 3) If I remove the $3400 (plus growth) from my Roth IRA, can I still contribute $6K to a backdoor Roth IRA (Deposit into Traditional IRA and transfer to Roth IRA) in 2021? Would love to hear your thoughts!

[@TravisSickle]

1. Not necessarily, the 6% only comes into play if you don't fix it before tax filing, including extensions. You could do it, but that if you're close I would wait. 2. no, one calculation. 3. Yes. Just pay close attention to the pro-rata rule.

[@thomasjust2663]

I like your videos, I'm and immigrant and I find there is a lot tp learn about how retirement works here

[@davidgesell]

Omg thankyou so much for the worksheet. I've been searching for a calculator to figure this for me after just DUMPING money into my Roth last year with all those sweet sweet government checks coming in. This was perfect. Thanks again.

[@janetm356]

Thanks for the worksheet. I made the mistake of withdrawing only the excess and not the earnings because I did not understand how to calculate them. I just used your worksheet and now I have the figure. Can I still file an amended return for the earnings? I already filed my taxes and the excess (only) was withdrawn before tax deadline. Thanks in advance if you can reply!

[@TravisSickle]

Glad it was helpful!

[@cloudwithraj]

Travis, great video! Quick question - "Balance as of date of withdrawal", will that be tax-year end balance (12/31/2020 balance) of the IRA or current balance (04/2021 statement balance)? Thanks a lot in advance!

[@TravisSickle]

current balance

[@cloudwithraj]

@@TravisSickle Thanks Travis, much appreciated

[@jackiec8464]

Great videos and content, very professional and great tool resource. How do you calculate NIA over multiple years for withdrawal.

[@TravisSickle]

For the years beyond the current one, it’s 6% of excess for each year. But there is a bit more to look at.

[@KFoxx-pj4ui]

I phased out for 2019 and was recommended to take all of my Roth contributions out and then contribute those same funds to a Traditional IRA for 2019. I was suggested to remove instead of recharacterize the funds. I have received the funds; which was only $5,600 out of the $6000 contributed due to the decrease in the market. Should I proceed with contributing to the Traditional IRA? If I do contribute to the Traditional IRA, will it be tax deductible when filing my taxes for 2019?

[@jkatz44]

I have a couple more questions: 1. Do you (or someone else?) have to fill out a form 5329 after requesting to remove an excess Roth IRA contribution? Also, how do excess roth IRA contributions affect already filed tax returns? Must you amend it with this 5329 form or some other form? 2. Will there be any penalty if you simply overcontributed to the Roth IRA, removed the excess before the deadline, and no securities/investments were bought with the money (thus no unrealized/realized gains).

[@andyhenson2235]

Thanks for the video! If I have an excess contribution in 2019 of $1000 that earned $200 and I remove the $1200 (contribution + earnings) before the tax filing deadline, how much will be subject to the 10% early withdrawal penalty? Only the earnings ($200) or the full amount ($1200)? Also, would I report this as income on my 2020 tax return? Thanks again!

[@TravisSickle]

Report the $200 as income. There should be a grace period on penalty but I can’t remember off the top of my head. I’ll look it up later today and let you know.

[@TravisSickle]

IRS says if you fix it by the tax filing deadline you won't have a penalty. I would do this asap and before the April 15th deadline -- even though it's been extended for the CV I would do it before just to be on the safe side. Here is the link for reference. www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

[@TravisSickle]

Here is the worksheet for the net income attributable for the Roth IRA. bit.ly/3aZi46u

[@user-kq7to9ok9k]

@@TravisSickle i only see on the link that the 6% penalty is avoided if you file by the tax deadline. I do not see that you can avoid the 10% early withdrawal penalty?

[@TravisSickle]

6% is for the over contribution. 10% is for early withdrawal penalty.

[@NextSurvivor]

If I realize midway through the year that I'm going to be above the income threshold, should I take out the excess now or just wait until before I complete and file taxes?

[@jkatz44]

Great video! What happens if you make too LITTLE reportable wages compared to your Roth IRA contribution? Is this process the same? For example, if you made $0 in reportable income but still contributed $2,000, should you try and take it out with proper calculations to avoid 6% penalty? And to confirm, is there any fee/tax if this is done before filing taxes?

[@TravisSickle]

Earned income. If you made $2000 you can still contribute to the Roth. If it’s still over contribution the tax depends on growth and the penalty depends on timing.

[@jkatz44]

@@TravisSickle Got it thanks! This may be an odd question but is “earned income” basically only mean W-2 employee or 1099 independent contractor/freelancer? In other words, can you report earned income without either of these two statuses?

[@TravisSickle]

@@jkatz44 kzbin.info/www/bejne/hJeplYOAh9eIfa8

[@TravisSickle]

Hope this video helped.

[@alisatobin9287]

Just to be sure you don't miss my question at the end of my comment reposting: Do I need to use the worksheet 5 separate times to calculate the earnings on the 5 different contributions I made in March, May, June, September, & December of 2019? Thank you!

[@Virtues162]

Thanks Travis__This is an excellent video and I believe it would have been even better if you had added a couple of minutes explanation of tax implication! If you end up with a lesser amount __ you withdraw that lower amount. Is the NIA the lesser amount that you withdraw or the amount by which it is less than the original contribution? For example, you contributed 6000, there was a loss and the withdrawal amount becomes $5000 after the calculation. What is called Net income attributable (NiA)? is it the $5000 that you withdraw? Or, is it the $1000 by which it was less than the original $6000. What are the tax implications? Will claim the $1000 as a loss in you tax fling? Many thanks in advance for your help.

[@TravisSickle]

In almost every case it makes sense to fix it asap and not wait to pay the 6% penalty.

[@user-kq7to9ok9k]

Thanks Travis. Do you have a video that shows where to report the excess/earnings on 1040 and any additional forms that need to be filed with the 1040 so that the earnings are correctly reported.

[@TravisSickle]

The first thing you need to do is remove the excess using the worksheet. I don’t have a video on it but maybe could do one soon.

[@lkjafiowoijaoijdsijf]

Did you ever figure this out? I'm in the process of having Fidelity calculate how much should be withdrawn from my ROTH IRA due to excess contributions...but I'm having trouble finding someone/or an article that will tell me how to make sure that I've filed the correct tax forms to prove that I've removed the excess (and earnings) from my ROTH IRA.

[@user-kq7to9ok9k]

@@lkjafiowoijaoijdsijf what are you doing with excess. Recharacterizing or early distribution?

[@lkjafiowoijaoijdsijf]

I’m doing an “Excess Contribution Withdrawal”. Fidelity has an online form/workflow you go through for it. They are going to do the calculation and send me an email of how much I would need to move a few days after doing that online form (taking longer than that though). When I called Fidelity and got to speak with someone, he said I would NOT be receiving an updated Tax Form (1099-R or anything) for 2020, but that I WOULD receive a 1099-R for 2021 Tax Return. So I’m just confused how to show on my 2020 Tax Return that I withdrew the Contributions and Earnings, and how to make sure I include the earnings as Gross Income for 2020 and pay the 10% early withdrawal tax on it.

[@lkjafiowoijaoijdsijf]

Also, we just checked our mail, and Fidelity mailed us their calculated Net Income Attributable for my wife and I’s accounts. Their calculations are almost the exact same as mine, so I feel comfortable with them. The also said in these documents “The amount of earnings returned to you, if any, will be reported as taxable income for the year which the excess contribution was made. If you are younger than 59 1/2, the earning may be subject to a 10% early withdrawal penalty. This transaction will be reported on tax form 1099-R, which will be mailed to you next January. You may also be required to file IRS Form 5329 with your tax return.” So, right now I’m going to be calling the “Retirement Specialist” number they gave me and ask about: 1. Is that 5329 needed for 2020 or 2021 tax return. (I assume 2020?...) 2. Do I wait until I receive the 1099-R next year to count it as taxable income? Then I’m sending these documents to my Tax Advisor and asking him as well, haha. That’s where I’m at.

[@awdentler1]

Hi Travis, first off--great video. Great concise and clear communication style. Do you provide the NIA calculator you demo or is that a proprietary tool?

[@TravisSickle]

I’ll see if I can post it on our blog this weekend

[@TravisSickle]

Here is the worksheet for the net income attributable for the Roth IRA. bit.ly/3aZi46u

[@alisatobin9287]

Thank you Travis! It has been a bit of a nightmare to correct my over contribution due to a transfer of my Roth to another brokerage (not my choice), new baby at home, and covid! Thanks to your video I have a bit more understanding and feel empowered! My question to you is whether or not I need to use the worksheet 5 different times to calculate the five different contributions I made in March, May, June, September, & December of 2019. I got married at the end of the year and to my shock and disappointment our combined salary means I can no longer contribute to a Roth and need to pull out my entire contribution and associated earnings for 2019 :(

[@TravisSickle]

Alisa Tobin no. Only once. That’s because it’s not tired to your contributions. I know that’s super confusing. But back to the example, if you contribute and leave it in cash, you can’t just take out what you put in, you also need to account for the growth of the other assets. Congrats on baby! We just had our 4th 3 weeks ago.

[@alisatobin9287]

@@TravisSickle Thank you so much for your quick response! I really appreciate it. In that case do I use the date of my first contribution of 2019 as the one date? Also!USAA transferred my account to Charles Schwab and both sides tell me they no longer have access to what my account was valued at on the date of my first contribution. The closest I can get is the value of the account 14 days prior which I have from a hard copy statement I received. Can I use that amount for the worksheet? Happy Belated Father's Day four times over! Wow! You guys must be a pro at this parenting thing by now!

[@danyellewilson3459]

@@alisatobin9287 Hi! I had the same problem with USAA in Charles Schwab! How did you fix it? I ended up moving to fidelity. They can only do my excess from the time they had it.

[@TravisSickle]

Try the worksheet in the description. It will walk you through it. You can get the numbers from your statements.

[@TravisSickle]

They can do it. They just don’t want to do the work. Did you make the contributions all at once or monthly?

[@enChristos23]

Does the NIA calculation apply if i recharacterize the Roth overcontribution into a Traditional IRA which will be treated as non-deductible? Wondering if the NIA only applies if withdrawing the Roth IRA overcontribution.

[@TravisSickle]

Abel Joseph yes.

[@TravisSickle]

It would be taxable if you put it into a traditional Ira too. The earnings are not “earned income” so they couldn’t be contributed to the plan technically.

[@chaovt210]

I made too much on 2019 to contribute any amount to my Roth IRA. I need to fix my Roth IRA account now. I am wondering do I need to sell my stock and take the money out or I can just transfer the shares to my personal account?

[@TravisSickle]

That should be okay. You’ll still have to pay tax on the growth.

[@GenHornhead]

I just encouraged my dad to contribute to a ROTH IRA not realizing he makes above the limit. He just put in $5K toward his 2020 limit. Now let's assume the following fact pattern: 1. He earns 40% and finishes with $7K at the end of 2021 2. He takes out his original $5K contribution before the end of 2021. 3. The $2K of earnings are left in for 2022. I'm thinking he will owe 6% on the $2K in earnings when he files for the 2021 tax year. But since the contribution counted toward 2020 would he need to withdraw by 4/15/21 rather than waiting until the end of the year to avoid the excess contribution penalty? Also, is there any additional 6% penalty the following year for leaving the $2K of earnings in the account rather than pulling them out?

[@TravisSickle]

Fix it and he won't owe on the penalty. Call our office if you can't figure it out -- we can help.

[@GenHornhead]

After a bit more research, a recharacterization seems the cleanest route. Will let you know if we hit any snags. Thanks!

[@myhouse-yourhouse]

Hi Travis, Can I choose carry over method and file 5329 for penalty? But it the over contribute is over 3 years, do you submit for each year?

[@TravisSickle]

You have to do the math on the over contribution, remove it and then do what you want after. In this case, recontribute. You may be able to do it at the same time but the dealing with the IRS and how it happens on the backend with where you hold the Roth will vary by institution. Complicated. Let me know if you have more questions on this.

[@Snipely]

Does a carry over to following year necessitate a withdrawal and NIA calc? The money isn't leaving the account. I don't see the advantage in that method vs. just taking out as a distribution.

[@Snipely]

Also, can I withdraw all my previous contributions first, tax and penalty free, to reduce my NIA before correcting the excess withdrawal for the one year?

[@TravisSickle]

I think you’re trying to find a way around fixing the issue. But you can’t, you must fix it. The other transactions are separate.

[@Snipely]

@@TravisSickle Thanks! Just trying to reduce the impact as much as possible. Can I reduce NIA by withdrawing contributions first? Let's say AOB is 100K and ACB is 200K. If I have 50K in contributions over the last 10 years, pulling these out first would reduce my earnings before correcting the overcontribution.

[@dwalker6868]

Thank you

[@chanthachum3515]

I just realized that I have over contributed for the past two years due to income limit. Fixing it seems a bit complicated. What can I do?

[@TravisSickle]

You will need to fix as soon as possible by doing an excess contribution worksheet and removing the contribution and attributable growth. Our office can help if you need more assistance. 813-321-6423 or you can schedule time on our website too. www.Sicklehunter.com

[@johnwilliam8366]

I went to the bank this morning and STOPPED my automatic deposit to my ROTH IRA account because I'm phased out COMPLETLY (income limits). Also, I might be over the limit for 457 deposit for 2019. I wonder what most people do that are COMPLETLY phase out for the Roth IRA or MAX out their 457/401K accounts

[@TravisSickle]

Possible opportunities to save more. Have you looked into Backdoor Roth IRA? Depending on plan, megabackdoor Roth. Depends on your situation for more.

[@straitjacketstudios]

isnt it the YEAR you turn 50 that you can start to add the catchup?

[@TravisSickle]

yes

[@dbest4755]

Over contributions are a NIGHTMARE !!

[@TravisSickle]

They are pretty annoying.

[@josephsaeteurn9158]

I wish I make that amount that I can’t contribute. That’s a good problem to have.

[@carlc4098]

My HSA got me over the limit.

[@TravisSickle]

You contributed too much to your HSA?

[@carlc4098]

Travis Sickle - yes, at the beginning of 2019. I loaded up to the limits for 2018 & 2019 not knowing that the HSA contribution can affect it. Now I have to go to TD AmeriTrade at lunch to get it fix.

[@FH415]

I’m still a bit confused. So I find out I’m over the income limit and Say I had 30k before the contribution and I made the $6000 contribution in February 1st. Fast forward to August 29th my account has grown to 50k. This means I have to pay taxes on the 20k of gain I made just because of the $6000 contribution?! There’s no way I made that much gain off of the $6000, off the existing amount yes but definitely not off the $6000. Please help. Thanks

[@user-kq7to9ok9k]

your broker should be able to provide you with the value of the excessive contribution.

[@TravisSickle]

Likely not. They usually won’t do the math for you. Most advisors don’t even know how to do it.

[@keithparker9503]

The Turbo Tax program is telling me that I contributed about $2200 more than I earned. If I don't write off the miles for the doordash, I can get an earned income of $2800 with about a $980 excess Roth Contribution. I am now wondering if I have done this before in previous years and do I have the 6% compiling from previous years and the IRS does not have to tell me until I cash out at 59.5 years old? I am in a real mess. I now wish I never opened a Roth. I could get slammed bad for the years I did not even report my Roth earnings on my taxes and I may have over contributed based on my lower income.

[@TravisSickle]

I'm sorry to hear all this, but you should speak with an advisor or tax pro.

[@TravisSickle]

July 23, 2023