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Old 09-04-2014, 02:33 PM
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Excess Contribution to ROTH IRA

For the year 2013, we made a excess contribution of 4992 in the ROTH IRA but realized late march of 2014 that we were not eligible to ROTH IRA because of our AGI. We removed the money from the the ROTH IRA before April 15th but need help to figure out how to report taxes. Based on the IRS document, the taxes for any income earned from the ROTH IRA would need to be reported in 2013 tax returns. We filed an extension in April so we could figure out how to report this. Also, I don't have any paperwork and wont be receiving it until early 2014. How do I report this so I can pay the taxes on the income earned which was 881.46. Also, would there be a penalty in addition to the taxes that I will pay. Appreciate everyone's help.



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Old 09-08-2014, 07:17 AM
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Originally Posted by shaja View Post
For the year 2013, we made a excess contribution of 4992 in the ROTH IRA but realized late march of 2014 that we were not eligible to ROTH IRA because of our AGI. We removed the money from the the ROTH IRA before April 15th but need help to figure out how to report taxes. Based on the IRS document, the taxes for any income earned from the ROTH IRA would need to be reported in 2013 tax returns. We filed an extension in April so we could figure out how to report this. Also, I don't have any paperwork and wont be receiving it until early 2014. How do I report this so I can pay the taxes on the income earned which was 881.46. Also, would there be a penalty in addition to the taxes that I will pay. Appreciate everyone's help.
For the year 2013, we made a excess contribution of 4992 in the ROTH IRA but realized late march of 2014 that we were not eligible to ROTH IRA because of our AGI. We removed the money from the the ROTH IRA before April 15th but need help to figure out how to report taxes.==========>>>> To correct your excess contribution, you must remove the excess amount and ANY APPLICAPABLE INCOME from the IRA by your tax-filing deadline, which is generally April 15. 2015.But if you miss the April 15 deadline, you may still be able to make the correction, as individuals who file tax returns by April 15 receive an automatic six-month extension on the deadline for removing the excess amount.

Based on the IRS document, the taxes for any income earned from the ROTH IRA would need to be reported in 2013 tax returns. We filed an extension in April so we could figure out how to report this. Also, I don't have any paperwork and wont be receiving it until early 2014. How do I report this so I can pay the taxes on the income earned which was 881.46. =======>> If you are not able to identify the earning to the 2 years than you may want to calculate it based on a reasonable allocation method or even request your brokerage/financial institution holding the account to allocate it for you. As you corrected the excess contribution before your tax-filing deadline, the IRS requires a calculation to determine the earnings or loss on the excess IRA contribution, the net amount you report as a contribution made for the 2013 year. The earnings or loss amount is factored into the amount of your return of excess distribution. This calculation is done based on IRS Notice 2000-39 and IRS Final Regulation 1.408-11.



Also, would there be a penalty in addition to the taxes that I will pay. =====>>>>>>>>yes; as failure to pay tax by apr 15 2014. When you make an excess contribution, you have until your tax return is due, including extensions, to remove the extra money and avoid the penalty tax. If you discover the error after you file, you can take the excess contribution out and file an amended return, again by your filing deadline including extensions. You must take out any earnings attributable to the excess money. These earnings are taxable and must be reported on your income tax return.



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Old 09-08-2014, 09:16 AM
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Thanks for your response. I did remove the excess amount and the applicable income by April 15th. Do I need fill a form 1099r or some other form? Also, in addition to the taxes I pay on the applicable income will there be another 10% penalty charge even if so removed before April 15th.

Also, when I get the form 1099r in jan 2015, do I still need to report it. I definitely don't want to pay double taxes.



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Old 09-08-2014, 04:09 PM
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Originally Posted by shaja View Post
Thanks for your response. I did remove the excess amount and the applicable income by April 15th. Do I need fill a form 1099r or some other form? Also, in addition to the taxes I pay on the applicable income will there be another 10% penalty charge even if so removed before April 15th.

Also, when I get the form 1099r in jan 2015, do I still need to report it. I definitely don't want to pay double taxes.
Thanks for your response. I did remove the excess amount and the applicable income by April 15th. Do I need fill a form 1099r or some other form?=========>>>No you do not fill the form 1099R; as said, the plan custodian/admin sends the form to the owner of a plan if he or she has made distributions of $10 or more from the plan in a given year

Also, in addition to the taxes I pay on the applicable income will there be another 10% penalty charge even if so removed before April 15th.==>>>Yes; since you realized that you have contributed too much to your R-IRA, you can avoid the 6 percent excess-contribution penalty by withdrawing the excess contribution and any earnings from the excess contributions as said previously. Your financial institution will be able to tell you how much, if any, of earnings must be withdrawn as well. When you withdraw the earnings, unless you are at least 59 1/2 years old, you must pay income taxes on the amount and a 10 percent early-withdrawal penalty. For example, if you had to take out $250 of earnings to avoid the excess-contributions penalty, you would have to include the $250 as taxable income and pay a $25 penalty (10 percent of $250).

Also, when I get the form 1099r in jan 2015, do I still need to report it. I definitely don't want to pay double taxes==>>>>s mentioned above; you can contact a CPA/IRS EA in your local area for more info in detail.



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