What this line means
The 6% excise tax on excess contributions to your Roth IRA. Multiply the excess amount on line 21 by 0.06. Like the traditional IRA excess penalty, this tax applies every year the excess remains in the Roth account. A $3,000 excess costs $180 per year until corrected.
Does this apply to you?
- You have uncorrected excess Roth IRA contributions at year-end
- You owe the recurring 6% penalty on Roth IRA excess amounts from this year or prior years
- You need to calculate the Roth IRA portion of your total excess contribution penalty
Easy to overlook
Withdrawing excess Roth contributions is simpler than traditional IRA excesses Roth IRA contributions (not earnings) can be withdrawn at any time without tax or penalty. If you have excess Roth contributions, withdrawing the excess amount itself is tax-free. You only owe income tax on the earnings attributable to the excess. This makes correcting Roth excesses less painful than traditional IRA excesses. 1 IRS Publication 590-A — Contributions to IRAs
The backdoor Roth strategy avoids this penalty entirely If your income exceeds the Roth IRA contribution limits, contributing to a nondeductible traditional IRA and then converting to a Roth IRA (the backdoor Roth) is not an excess contribution. The conversion itself is not subject to income limits. Filers who contribute directly to a Roth when over the income limit pay the 6% penalty unnecessarily when the backdoor strategy achieves the same result legally. 2 IRS Form 5329 instructions — Line 24
Watch out for this
Assuming a Roth conversion fixes a Roth contribution excess. If you made a direct Roth IRA contribution that exceeded your limit, converting from a traditional IRA to a Roth IRA does not absorb the excess contribution. Conversions and contributions are tracked separately. The excess from a direct contribution must be withdrawn or absorbed through reduced future contributions.
Footnotes
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IRS Publication 590-A, Contributions to Individual Retirement Arrangements, Roth IRA Withdrawals. https://www.irs.gov/pub/irs-pdf/p590a.pdf ↩
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IRS Form 5329 Instructions, Part IV, Line 24. https://www.irs.gov/instructions/i5329 ↩