I contributed $5,500 to my Roth IRA in 2018, but maybe my income didn’t allow it. My 2018 income was $145,000. What should I do?

If you made an excess Roth contribution, you must remove it, report it to the IRS, and pay a 6% penalty for every year it was in the account. If you can remove it by Dec. 31, you won't owe a 2022 penalty.

The 2018 phaseout for Roth IRA contributions was $120,000 to $135,000 for single taxpayers and $189,000 to $199,000 for married couples filing jointly. If your income was below the bottom number, you could make the maximum contribution; if it was above the top number, you couldn't contribute.

If you filed a joint 2018 tax return, no problem. If you were a single taxpayer, your total income did indeed disqualify your 2018 contribution. If so:

Step one: Complete your IRA custodian's form for removing excess IRA contributions. The custodian will remove the contribution from the account and return it to you.

Step two: Report the excess and pay the penalty. An excess Roth contribution didn't affect your 2018 return, so it's not essential to file an amended return, says Ed Slott, a Rockville Centre tax accountant. But you must complete the appropriate IRS Form 5329 for 2018, 2019, 2020, 2021 (and, if necessary, for 2022). The forms are available online. His advice: Send the IRS all the 5329 forms and penalty checks for each year in one envelope, certified mail, return receipt requested.

The form is called Additional Taxes on Qualified Plans. You won’t owe additional taxes because Roth contributions have already been taxed. But the 6% penalty on a $5,500 excess contribution is $330 for each calendar year.

The bottom line

There's an annual penalty on excess IRA contributions until they're removed.

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