Roth Return of Contribution Earnings
Sorry if this has been addressed before. I’d like to get back my wife’s Roth 2007 $5,000 contribution I made for her in January so we can start our separation.
The Roth is a brokerage account where I trade stocks on her behalf. It is three years old, and I haven’t been keeping detailed records the way I would for a taxable trading account.
The brokerage outfit has a distribution request form, and it doesn’t have a checkbox for returning the current year’s contribution. Still, it appears that it is the correct form for this transaction, and I need to check the Return of Excess Contribution(s) checkbox.
If I check that box, it appears that I need to track the cost of every transaction I’ve made for her with this year’s money, plus allocate interest paid on cash balances. Where the stock is still held, I’ll need to sell it in order to have a trackable transaction.
After that, I need to state what the earnings are for the $5,000. And we get to pay taxes on that, plus a 10% penalty on the earnings for being under 59.5.
Does all of this seem necessary just to get back the 2007 Roth contribution? Is there anything else I need to do?
Permalink Submitted by Al Fry on Wed, 2007-10-24 13:55
You did not state why it is an excess contribution, unless I missed it.
Permalink Submitted by P Rice on Wed, 2007-10-24 16:19
The $5,000 is my 51-year old wife’s 2007 Roth IRA contribution. If she wants the $5,000 returned in 2007, what should it be called? The distribution request form doesn’t have a checkbox for the return of the current year’s contribution.
Permalink Submitted by Alan Spross on Thu, 2007-10-25 03:57
The procedures are the same for correcting excess contributions and simply requesting a discretionery return of contributions. You may use the excess contribution section on the distribution form. The custodian should be able to figure the earnings, but if you want to check the figure, see the worksheet on p 32 of Pub 590. “Contributions Returned before Due Date of Return” is also covered on that page. Of course, your wife will have to request the distribution, but the correct section on the form will prevent this from being mis coded as an early distribution. Here is the appropriate IRS Reg:
http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_A…
Permalink Submitted by Tom Rogers on Thu, 2007-10-25 04:13
I suspect your wife’s custodian for the Roth is Fidelity Investments as they use the term “excess contributions ” when in reality it is just a return of your contribution plus or minus any earnings since contribution date . You don’t have to worry if the contribution you are trying to get back is mixed with your wife’s other Roth’s as the custodian will calculate .
If you are interested in expiditing the process (assuming you are invested in stocks/bonds) you need to sell stocks /bonds that approximate the expected proceeds . If you are already in a money market /cash position then you don’t have to worry .
Permalink Submitted by P Rice on Fri, 2007-10-26 22:14
Thanks for the info and the cite.