Excess contribution to a Roth
A client deposited an extra payment into her Roth IRA. We are after the tax deadline of April 15th, so as I understand it, we can have the excess contribution returned to her and she will pay a 6% penalty. Is there anyway to get around this penalty?
Permalink Submitted by Alan - IRA critic on Fri, 2013-05-17 16:56
If the client either filed her 2012 return by 4/15 OR filed an extension, she has until 10/15 to make a corrective distribution of the excess amount. That will avoid the 6% excise tax. But any earnings on the excess contribution are taxable in the year the contribution was made, either 2012 or 2013. Therefore, if the excess contribution (last contributions made for 2012) was made in 2012, and there are earnings included on the corrective distribution, she would have to amend her 2012 return to include the earnings and the 10% penalty on the earnings. If the excess contribution was small, it may be easier to just pay the 6% tax on the excess for 2012 and then contribute that much less for 2013, as that would allow her to apply the excess to 2013 without removing anything. This is handled on Form 5329.