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Old 04-14-2016, 02:24 AM
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Exclamation Can Excess Contribution paid in previous year be used this year?

I got an email from my ROTH account custodian that I have $5500 excess fund available in my IRA account, which is more than the 2015 yearly contribution limit($5500). I emailed back and told him that the amount which they are claiming as excess, belongs to both years 2014 and 2015. They replied me back and told me that when I deposit amount for both years I forget to select options for both years and selected only 2015 due to this fund is only contributed to 2015. I already filed my taxes of 2015. I declared during 2014 taxes that I contributed for ROTH IRA account with an assumption that I contributed for both years 2014 and 2015, but which is not valid any more after IRA custodian email. I also contributed $1000 towards 2016. What are the available options for me? Do I need to withdraw excess contribution and need to amend my taxes for both 2014 and 2015. Can I use this excess contribution towards current year 2016 without paying 6% panelty? Do I Need to withdraw that excess contribution now and contribute again.



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Old 04-14-2016, 07:04 PM
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If your total r-IRA contributions are greater than the allowed amount for the year in your situation, and you have not withdrawn the excess contributions, you must complete Form 5329 to calculate a 6% penalty tax on the excess contribution. This penalty tax will continue to be assessed every year on ALL excess contributions until you withdraw the excess contributions.

Avoid this tax by withdrawing any excess amount before the due date. any earnings ) on the withdrawn contributions must still be included in gross income.

If you do not withdraw the excess amount, you will pay the penalty again in the following year. However, if you make an r-IRA contribution which is less than your limit in a given tax year, a portion of the previously made excess contributions will apply toward your contribution limit for that tax year and your total excess contributions for prior years will be reduced by the same amount.



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Old 04-14-2016, 11:49 PM
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Quote:
Originally Posted by Wnhough View Post
If your total r-IRA contributions are greater than the allowed amount for the year in your situation, and you have not withdrawn the excess contributions, you must complete Form 5329 to calculate a 6% penalty tax on the excess contribution. This penalty tax will continue to be assessed every year on ALL excess contributions until you withdraw the excess contributions.

Avoid this tax by withdrawing any excess amount before the due date. any earnings ) on the withdrawn contributions must still be included in gross income.

If you do not withdraw the excess amount, you will pay the penalty again in the following year. However, if you make an r-IRA contribution which is less than your limit in a given tax year, a portion of the previously made excess contributions will apply toward your contribution limit for that tax year and your total excess contributions for prior years will be reduced by the same amount.
Thanks for the reply. I already filed my taxes of 2015. After filing my taxes, I got to know that the contribution is not applied to 2014 and 2015 and all contribution is applied against 2015 only. Based on your reply my understanding is that If I withdraw excess amount by the filing date which is april 18, 2016, There is no panelty. If I do not withdraw excess contributed amount and leave for following year then I have to pay 6% panelty and need to amend my taxes by completing 5329. Please correct if I am wrong. Is there a need to amend my taxes(state and Federal) if I withdraw excess amount by april 18, 2016?

While filing 2014(previous Year) taxes, I declared that I contributed to Roth IRA in 2014, But that is not valid anymore, as the amount is not applied towards 2014. Do I need to file amend my all taxes (state and federal) for 2014 (previous year) too?

As per IRA custodian in my case, my excess contribution can not be applied towards 2016 as it was deposited on 03/11/2015 and also all the contribution is invested in Stocks.
I need to liquidated stocks first and then file for a distribution to withdraw excess amount. Are they correct?

Is it not possible to reclassify or apply excess contribution to following year if it is in stocks?

If I liquidate my stocks as per IRA custodian suggestion, Do I need to liquidate based on cost value or current market value?

5 out of 6 stock's value are depreciated from its cost value and it has less market value as of today. If Custodian say I need to withdraw $5500 excess amount from account. Do I need to liquidate stocks on current market value or the cost value. Please suggest.



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Old 04-15-2016, 03:23 AM
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Join Date: Oct 2010
Posts: 5,258
Quote:
Originally Posted by purilokesh View Post
Thanks for the reply. I already filed my taxes of 2015. After filing my taxes, I got to know that the contribution is not applied to 2014 and 2015 and all contribution is applied against 2015 only. Based on your reply my understanding is that If I withdraw excess amount by the filing date which is april 18, 2016, There is no panelty. If I do not withdraw excess contributed amount and leave for following year then I have to pay 6% panelty and need to amend my taxes by completing 5329. Please correct if I am wrong. Is there a need to amend my taxes(state and Federal) if I withdraw excess amount by april 18, 2016?

While filing 2014(previous Year) taxes, I declared that I contributed to Roth IRA in 2014, But that is not valid anymore, as the amount is not applied towards 2014. Do I need to file amend my all taxes (state and federal) for 2014 (previous year) too?

As per IRA custodian in my case, my excess contribution can not be applied towards 2016 as it was deposited on 03/11/2015 and also all the contribution is invested in Stocks.
I need to liquidated stocks first and then file for a distribution to withdraw excess amount. Are they correct?

Is it not possible to reclassify or apply excess contribution to following year if it is in stocks?

If I liquidate my stocks as per IRA custodian suggestion, Do I need to liquidate based on cost value or current market value?

5 out of 6 stock's value are depreciated from its cost value and it has less market value as of today. If Custodian say I need to withdraw $5500 excess amount from account. Do I need to liquidate stocks on current market value or the cost value. Please suggest.
. I already filed my taxes of 2015. After filing my taxes, I got to know that the contribution is not applied to 2014 and 2015 and all contribution is applied against 2015 only. Based on your reply my understanding is that If I withdraw excess amount by the filing date which is april 18, 2016, There is no panelty. If I do not withdraw excess contributed amount and leave for following year then I have to pay 6% panelty and need to amend my taxes by completing 5329. Please correct if I am wrong. Is there a need to amend my taxes(state and Federal) if I withdraw excess amount by april 18, 2016? =======>>as you over contributed to your R-IRA by accidently contributing too much you will need to withdraw the excess contribution. you need to contact the institution your r-IRA is with to request and complete a Distribution Request for Excess Contributions from your R-IRA form for the applicable years. since the contribution occurred in 2015, you can withdraw the excesscontribution and the earnings thereon by April 15, 2016 /or the extended due date of your income tax return. Though, you should do it as soon as possibleas the contribution was made in 2015 and your return is on extension until October 15, 2016, then you can likewise withdraw the 2015 contribution and the earnings thereon on or before October 15, 2016. A special procedure is available if you already timely filed your 2015 tax return without withdrawing the contribution. In these cases, the corrective distribution won?t be considered an excess contribution subject to the 6% excise tax. However, any earnings on the returned contribution will be subject to income tax and a 10 % penalty if you are under age 59 1/2 at the time of the withdrawal, unless an exception applies.
Any prior year excess contributions, however, do not qualify for favorable tax treatment. These contributions will be subject to the 6% excise tax. You will need to file Form 5329 to report the excess contribution and to pay the additional tax owing for all applicable year(s). The penalty is cumulative. It applies on an annual basis until the excess contribution is withdrawn or can be counted as a regular contribution for a succeeding year, assuming you are eligible to make a contribution and you don?t make an additional contribution for that year. The earnings on the excess contribution can be left in the account.




While filing 2014(previous Year) taxes, I declared that I contributed to Roth IRA in 2014, But that is not valid anymore, as the amount is not applied towards 2014. Do I need to file amend my all taxes (state and federal) for 2014 (previous year) too? ===== no; You don't "report" Roth contributions on your tax return. There's no place to record them. Any reporting is handled automatically by the account custodian. There's nothing for you to amend. The bank corrected their error on the original reporting.

Roth contributions are after tax and come out tax free. When you take the distributions down the road when you are retired, you don't pay tax on the distributions.you don't have anything to report or amend.r-ira contributions are not tax deductible UNLIKE regular IRA constributions.
As per IRA custodian in my case, my excess contribution can not be applied towards 2016 as it was deposited on 03/11/2015 and also all the contribution is invested in Stocks.
I need to liquidated stocks first and then file for a distribution to withdraw excess amount. Are they correct? =====>You need to contact the IRA administrator; sorry I am not a dealer/plan admin.

Is it not possible to reclassify or apply excess contribution to following year if it is in stocks?

If I liquidate my stocks as per IRA custodian suggestion, Do I need to liquidate based on cost value or current market value? =.AS mentioned a bove; you need to contact the admin/dealer or broker.



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Old 04-15-2016, 07:13 PM
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Join Date: Mar 2015
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Quote:
Originally Posted by Wnhough View Post
. I already filed my taxes of 2015. After filing my taxes, I got to know that the contribution is not applied to 2014 and 2015 and all contribution is applied against 2015 only. Based on your reply my understanding is that If I withdraw excess amount by the filing date which is april 18, 2016, There is no panelty. If I do not withdraw excess contributed amount and leave for following year then I have to pay 6% panelty and need to amend my taxes by completing 5329. Please correct if I am wrong. Is there a need to amend my taxes(state and Federal) if I withdraw excess amount by april 18, 2016? =======>>as you over contributed to your R-IRA by accidently contributing too much you will need to withdraw the excess contribution. you need to contact the institution your r-IRA is with to request and complete a Distribution Request for Excess Contributions from your R-IRA form for the applicable years. since the contribution occurred in 2015, you can withdraw the excess contribution and the earnings thereon by April 15, 2016 /or the extended due date of your income tax return. Though, you should do it as soon as possible as the contribution was made in 2015 and your return is on extension until October 15, 2016, then you can likewise withdraw the 2015 contribution and the earnings thereon on or before October 15, 2016. A special procedure is available if you already timely filed your 2015 tax return without withdrawing the contribution. In these cases, the corrective distribution won't be considered an excess contribution subject to the 6% excise tax. However, any earnings on the returned contribution will be subject to income tax and a 10 % penalty if you are under age 59 1/2 at the time of the withdrawal, unless an exception applies.
Any prior year excess contributions, however, do not qualify for favorable tax treatment. These contributions will be subject to the 6% excise tax. You will need to file Form 5329 to report the excess contribution and to pay the additional tax owing for all applicable year(s). The penalty is cumulative. It applies on an annual basis until the excess contribution is withdrawn or can be counted as a regular contribution for a succeeding year, assuming you are eligible to make a contribution and you don?t make an additional contribution for that year. The earnings on the excess contribution can be left in the account.




While filing 2014(previous Year) taxes, I declared that I contributed to Roth IRA in 2014, But that is not valid anymore, as the amount is not applied towards 2014. Do I need to file amend my all taxes (state and federal) for 2014 (previous year) too? ===== no; You don't "report" Roth contributions on your tax return. There's no place to record them. Any reporting is handled automatically by the account custodian. There's nothing for you to amend. The bank corrected their error on the original reporting.

Roth contributions are after tax and come out tax free. When you take the distributions down the road when you are retired, you don't pay tax on the distributions.you don't have anything to report or amend.r-ira contributions are not tax deductible UNLIKE regular IRA constributions.
As per IRA custodian in my case, my excess contribution can not be applied towards 2016 as it was deposited on 03/11/2015 and also all the contribution is invested in Stocks.
I need to liquidated stocks first and then file for a distribution to withdraw excess amount. Are they correct? =====>You need to contact the IRA administrator; sorry I am not a dealer/plan admin.

Is it not possible to reclassify or apply excess contribution to following year if it is in stocks?

If I liquidate my stocks as per IRA custodian suggestion, Do I need to liquidate based on cost value or current market value? =.AS mentioned above; you need to contact the admin/dealer or broker.
Thanks for your reply.

My IRA custodian is not ready to move my excess contribution to 2016. So I sold my securities today and submitted a distribution form to withdraw excess contribution. As per IRA custodian it will take three - four business days and will not be completed before or on last date (04/18/2016) of tax filing this year. IRA custodian also told me that this would not be an issue but he is not sure. As per IRA custodian, clearing house takes time to generate 5498 and it will not be before May this year. When IRA will get 5498 at that time excess contribution will be withdrawn.

Based on this current situation I have below question.

1. Do I need to amend my taxes as I am not able to withdraw excess contribution on/before last day of filing (04/18/2015)?

2. If yes Do I need to pay a 6% panelty when I amend my taxes. Please suggest.



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Old 04-15-2016, 08:11 PM
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Join Date: Oct 2010
Posts: 5,258
Quote:
Originally Posted by purilokesh View Post
Thanks for your reply.

My IRA custodian is not ready to move my excess contribution to 2016. So I sold my securities today and submitted a distribution form to withdraw excess contribution. As per IRA custodian it will take three - four business days and will not be completed before or on last date (04/18/2016) of tax filing this year. IRA custodian also told me that this would not be an issue but he is not sure. As per IRA custodian, clearing house takes time to generate 5498 and it will not be before May this year. When IRA will get 5498 at that time excess contribution will be withdrawn.

Based on this current situation I have below question.

1. Do I need to amend my taxes as I am not able to withdraw excess contribution on/before last day of filing (04/18/2015)?

2. If yes Do I need to pay a 6% panelty when I amend my taxes. Please suggest.
1. Do I need to amend my taxes as I am not able to withdraw excess contribution on/before last day of filing (04/18/2015)?========>you may;as said, as you made an excess contribution to your r-ira, you have until your 2015 tax return is due, including extensions, to remove the extra money and avoid the penalty tax. Since you discover the error after you filed 2015 return, you can take the excess contribution out by your filing deadline, apr 18 2016 including extensions , oct 15 2016(aslongas you filed f 4868 for extension)...say, the contribution was made in 2015 and your return is on extension until Oct 15, 2016, then you can likewise withdraw the 2015 contribution and the earnings thereon on or before Oct 15, 2016. The withdrawn money will not be treated as a contribution for that tax year. You must take out any earnings attributable to the excess money. These earnings are taxable and must be reported on your 2015 income tax return

Note;A special procedure is available if you already timely filed your 2015 tax return without withdrawing the contribution. In these cases, the corrective distribution won?t be considered an excess contribution subject to the 6% excise tax. I mean youmay get the excess amount ofmoney back if you already filed your taxes in a timely manner. Then, you have 6 months since the filing due date for taxes, not counting extensions, to have your extra money returned. You must file an amended tax return with the IRS. Report any earnings related to your R-IRA and explain the withdrawal you are making and write "Filed pursuant to section 301.9100-2" at the top of the return. Make any other changes you need to on the return. If your following year's R- IRA contributions are less than the maximum amount you are allowed, you can add your excess contributions to that year's amount by moving the necessary amount of money as directed by the financial institution where you can access your R-ira.

However, any earnings on the returned contribution will be subject to income tax and a 10 percent penalty if you are under age 59 1/2 at the time of the withdrawal, unless an exception applies.


2. If yes Do I need to pay a 6% panelty when I amend my taxes. Please suggest=====>as mentioned above;



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