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While preparing 2013 Tax Return I have discovered that I was not allowed to contribute to my Roth IRA in 2011 due to the AGI limitations. I did contribute $5,000 in 2011.

I understand that I have to file amended 2011 and 2012 returns both having form 5329 added and pay 6% excise tax on the excess amount (=5,000) for both years. I will also file 5329 for 2013, but since I caught it before April 15, 2014 it will be on the original return.


Here's what I understand happened:

2011: $5,000 Roth contribution; all excess
2012: You don't say what you did. We need to know
2013: Roth contribution; all excess

The only thing we can say for sure at this point is that you owe the excess contribution penalty of $300. You do not have to amend your 2011 1040. Just file the 5329 along with the $300.

<I?I am also planning to remove both principal (=5,000) and earnings in order to correct the excess contribution and avoid paying 6% excise tax in subsequent years. My broker (E-Trade) will not calculate earnings on contributions made during years prior to 2013, so I will have to do it myself -- I did find the IRS Worksheet in Pub 590 to calculate the earnings -- and I will do so.

Please don't. The only year you need earnings for is 2013.

Everything that I have read so far says that I need to report the earnings portion of the return as regular income as well as calculate 10% early withdrawal penalty on it (since I am younger than 59 and 1/2) for the year the excess contribution was made, NOT for the year it was removed.

You're very confused. Get back to us about 2012 and we'll finish.

Phil
Rule Your Retirement Home Fool
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