Roth IRA Overcontribution
Over contribution of $4000 in 2007 to Roth.
I have until Oct 15 to correct.
I must pull out controbution plus earnings.
Custodian will not calculate earnings.
What is IRS worksheet used to calculate?
Over contribution of $4000 in 2007 to Roth.
I have until Oct 15 to correct.
I must pull out controbution plus earnings.
Custodian will not calculate earnings.
What is IRS worksheet used to calculate?
Permalink Submitted by Alan Spross on Mon, 2008-09-08 22:24
See p 33:
http://www.irs.gov/pub/irs-pdf/p590.pdf
Permalink Submitted by Diana Davia on Mon, 2008-09-08 23:21
If NIA is negative, (i.e. started at $4000, ended up with $3081, then how is it reported?
Permalink Submitted by Alan Spross on Mon, 2008-09-08 23:36
If earnings are negative, and this is quite likely in a bear market, the amount returned will be less than contributed. There will be no earnings to tax on the 2007 return.
The IRS wants an explanatory statement attached to the return, but there is no big downside for not attaching one if you already filed 2007. You and the IRS will get the 1099R reporting the corrective distribution next January and that would clear up any questions about the excess contribution.
Note that if income is too high for a Roth contribution, the contribution can also be recharacterized to a (usually) non deductible TIRA contribution and Form 8606 filed. This is less attractive as a solution when earnings are small or negative than when earnings are good and you do not want them in a taxable distribution.
Permalink Submitted by Diana Davia on Tue, 2008-09-09 00:29
If there is a loss, and a recharacterization is desired, does the original contribution amount get recharacterized ($4000) or does the current IRA value get recharacterized ($3081)?
Permalink Submitted by Alan Spross on Tue, 2008-09-09 02:03
The earnings adjusted value gets recharacterized, the same amount that would be distributed if the contribution were withdrawn. While 3,081 is the amount that would physically move to the TIRA account, the original contribution of 4,000 is what is considered contributed originally to the TIRA. If the TIRA contribution is non deductible, the 8606 would be completed showing a non deductible contribution of 4,000.
If taxpayer (and spouse if any) do not participate in an employer retirement plan, the TIRA contribution would be deductible on the return, but if one of both do, it could be deductible but it is not likely. The chart in Pub 590 would need to be checked to see if the deduction were possible.