In this video, I’m talking about the Roth IRA 6% overcontribution penalty. This is for a Roth IRA excess contribution and a net income attributable calculation.
1:50 Roth IRA Contribution Limits
3:51 Roth IRA Income Limits
8:03 How over contributions happen
10:12 How to fix over contributions
Here is the worksheet for the net income attributable for the Roth IRA.
Contribution Limits
IRA Phase Out
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Here is the worksheet for the net income attributable for the Roth IRA. http://bit.ly/3aZi46u
I wish I make that amount that I can’t contribute. That’s a good problem to have.
Over contributions are a NIGHTMARE !!
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.
isnt it the YEAR you turn 50 that you can start to add the catchup?
Hey Travis, Thank you so much for posting this video. It is very difficult to find good information on this situation and sadly I haven't had a lot of success with some of the CPA's I have reached out to. My situation spans both my wife and my IRA's and has 2 years worth of over contributions on each of ours (2019 & 2020). I have used your calculator to figure out the excess contribution etc……However I would feel comfortable if I was confident in the amount of earnings on the "good" contributions we made in 2018 and first half of 2019. Any way I could use the calculator to figure out the earnings on the "good" contributions to get comfortable before pulling these dollars out? Thanks.
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?
I like your videos, I'm and immigrant and I find there is a lot tp learn about how retirement works here
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!
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).
Thank you
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!
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?
A lot of talking that goes aboslutly no place! The real issue is the mechanics of how to actually pull the overcontribution out and document in your tax returns. Travis' advice is to 'pull out the correct paperwork'? Super helpful there…
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?
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.
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
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!
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 🙁
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?
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!
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?
My HSA got me over the limit.
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.
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?
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?