Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Without paying much attention, I made my usual contribution to my and my wife's Roth IRAs back in the beginning of 2007.

It wasn't until I was doing my tax return with TT, that it warned me that I made an excessive contribution of $5K to each Roth IRA. This was because I did not meet the earned income test; since we are living on my pension and our Social Security. If I leave it as is, I need to pay a $300 penalty on each Roth IRA (and continue paying each year until I withdraw the $5K).

From what I have come up with so far, I should be able to avoid the penalty if i withdraw the $5K from each account prior to April 15th. However, It also indicates that I will need a 1099R. The 1099R is supposed to have code P and Code J - but will indicate 2008. TT says this can be used for the 2007 return, but I ned to indicate the 1099R is for 2008.

- Does this sound right ?
- If so, assuming I make the withdrawal in a week or so, but do not get the 1099R by April 15th, what happens at that point. I would like to avoid filing amended returns and getting into the headlights.

btw - there is at least $5K in cash in both accounts now.
Print the post Back To Top
No. of Recommendations: 4
Without paying much attention, I made my usual contribution to my and my wife's Roth IRAs back in the beginning of 2007.

It wasn't until I was doing my tax return with TT, that it warned me that I made an excessive contribution of $5K to each Roth IRA. This was because I did not meet the earned income test; since we are living on my pension and our Social Security. If I leave it as is, I need to pay a $300 penalty on each Roth IRA (and continue paying each year until I withdraw the $5K).

From what I have come up with so far, I should be able to avoid the penalty if i withdraw the $5K from each account prior to April 15th. However, It also indicates that I will need a 1099R. The 1099R is supposed to have code P and Code J - but will indicate 2008. TT says this can be used for the 2007 return, but I ned to indicate the 1099R is for 2008.


Forget TT (OK, I was thinking about another verb, but we'll stick with "forget"), except for the part about the contribution being illegal. It was, and unless you plan to have earned income in 2008 there's only one way to fix it. You must withdraw the contributions and the earnings on them by the extended due date of your return.

The earnings, if positive, will be 2007 income which you must report on your 2007 return. Positive earnings are taxable income on your 2007 return. If either of you is under 59 1/2 at the time positive earnings are distributed there will be a 10% premature distribution penalty on that spouse's earnings.

Call the IRA custodian(s) and tell them that you need to withdraw the contributions and earnings. They'll take it from there. (If they charge you a fee you can pay that from funds outside the IRA. That doesn't count as a contribution.)

You will not receive a 2007 1099-R. Period. In January 2009 you will receive a 2008 1099-R showing the distribution. We'll worry about that at that time.

Once you find out the amount of earnings you're withdrawing get back to us, and we can figure how how to trick TT into putting the right numbers in the right places.

Phil
Print the post Back To Top
No. of Recommendations: 0
When I've had to make these kind of withdrawals due to income limitations and I ask the trustee to calculate the earnings /losses they all do a fine job EXCEPT one: Parnassus. They take just the amount out that I indicate, no earnings, no losses. It's a drag 'cuz I then have to recreate the years activity and determine the gain or loss on each transaction, including dividends etc. In the future I may just forgo asking them to do any transaction and have other trustees take care of it (I like to spread the pain around).

MZ4
Print the post Back To Top