Incorrect rollover
My wife inherited $15,592.36 in cash. She mistakenly deposited this money into her traditional IRA and the custodian coded it as a “transfer”. How do I get this money out without paying taxes on it (since it’s after-tax money) and how do I treat the withdrawal for tax purposes? Is it an “excess contribution” subject to the 6% penalty?
Permalink Submitted by Alan Spross on Wed, 2010-03-03 22:54
Yes, it needs to be treated as an excess regular contribution to the IRA. But she does not have to remove the full amount if she either:
1) Was eligible for a regular contribution that she did not make for the year of the contribution or a later year or
2) Took a distribution from any of her TIRA accounts in a year later than the contribution was made.
What year was the money contributed?
Any of the above two items apply?
If not, she will owe the 6% excise tax for each year the contribution remains. Another 6% is added as of every 12/31. But if the 6% applies because it is too late to remove the excess contribution with earnings, then the EARNINGS stay in the account and only the actual contribution must be taken out or credited under one of the above two items.
Please advise re questions above.
Permalink Submitted by Stephen DeFilippis on Thu, 2010-03-04 01:24
The money was contributed in 2008. Neither of the above apply.
Permalink Submitted by Anonymous (not verified) on Thu, 2010-03-04 04:38
I realize this occurred in 2008, but how did this even happen without the receiving custodian sending a letter of acceptance out? Right now no tax forms have been generated (“transfer”), so why don’t you try to get this reversed. A lot of times, the IRA custodian will realize that they made an error and will work with you.
pko