Reporting Excess Roth Contributions from 2015, 2016 and 2017

[kamckinley]

Hi Everyone. I just want to confirm that I am reporting excess Roth contributions for a client correctly.

Situation: excess contributions made in 2015, 2016 and 2017 (income too high). Error not discovered until late 2017. The 2015 contributions have not been removed yet. 2016 contributions and earnings were removed in 2017 and a 1099-R was received for 2017. 2017 contributions have not been removed yet, but 2017 tax return hasn't been filed yet.

My biggest concern is 2015. Since the contributions haven't been removed yet, Form 5329 is required for 2015, 2016 and 2017, correct? It looks like I can file the 2015 and 2016 forms separately, no amended returns required. For 2017, I'll add to the 2017 tax return. Since she's way past the deadline to recharacterize the 2015 contributions, there's no way out of the 6% penalty for 2015, 2016 or 2017. Is that correct?

2016 - contributions removed in 2017, 1099R received and reported on 2017 tax return.

2017 - as long as the contributions are removed or recharacterized before the tax deadline plus extensions, then nothing needs to be reported.

This a big mess, so I'm just making sure I have the reporting requirements correct.

Thanks in advance!
Kristine

[Anarchrist]

there's no way out of the 6% penalty for 2015, 2016 or 2017. Is that correct?

Not necessarily. Have the taxpayer remove all excess contributions now. Write a letter with a sob story explaining how the excess contribution happened, that the taxpayer corrected it as soon as possible after finding out the error, and that the taxpayer now knows & understands the income limitations and will monitor the situation more closely to avoid this situation in the future. Include all 5329s with the letter and send it without payment. Request a waiver of the penalty.