Roth IRA
I just realized that I put $1400 more than the law allows into a Roth IRA for 2006. I am not entitled to put anything into a Roth for 2007. I would appreciate advice on what steps I should take to correct this mistake and when I should take them.
Permalink Submitted by Alan Spross on Fri, 2007-11-30 20:20
The deadline for a “timely” correction of a 2006 excess contribution was 10/15/07. Having missed that date, you still need to correct the excess contribution, however, it must now be done differently:
1) You have incurred the 6% excise tax for 2006, and need to file a stand alone 2006 5329 (Part IV) to report the tax (6% of 1,400 = $84).
2) Have your IRA custodian issue you a regular (early) distribution prior to year end. If you don’t, another 6% excise tax is incurred. Don’t even bother to explain to them why you are taking the distribution, because they don’t code it as a corrective distribution anyway. The good news is that any earnings STAY in the Roth. Just take out the $1,400.
3) You will get a 1099R reporting the distribution, and you will report in on Form 8606 with your 2007 return. You will also need a 5329 (part IV) to report the withdrawal of the amount you reported as excess on your 2006 5329. This will show you corrected the excess and there will be no tax or penalty due for 2007.
Total additional bill is therefore $84 plus any interest the IRS bills you on the late payment of the $84.
Permalink Submitted by A Straub on Fri, 2007-11-30 22:01
Thank you. Do I have to send the stand alone 2006 5329 (part IV) to report the tax before the end of this year or with the 2007 tax forms?
Permalink Submitted by Alan Spross on Fri, 2007-11-30 22:05
You can send it anytime you wish PRIOR to filing 2007, because the 2007 5329 builds on the 2006 5329. But the sooner you pay the 6% excise tax, the sooner any interest the IRS will want will stop accruing.