IRA Contributions Returned Before due date of tax return
Assistance with the following is much appreciated
T-IRA owner made multiple contributions for the 2014 tax year.
Subsequently it was determined he will not be able to deduct the contributions for 2014 due to participation in an employer plan
T-IRA owner want to withdraw all 2014 contributions
Question(s)
It seems (per pub 590) the contribution is returned tax-free and the income (if any) is taxable as long as the withdrawal takes place no later than tax filing plus extension (October 15 2015)
Publication seems to indicate the 10% early withdrawal penalty (assuming the account owner is < 59.5) does not apply. Can someone confirm the 10% penalty does not apply.
thank you
Permalink Submitted by Alan - IRA critic on Tue, 2014-05-27 17:43
The 10% penalty WOULD apply to the amount of earnings returned (the amount returned in excess of the actual contributions) if TIRA owner is under 59.5, unless they qualify for a different penalty waiver (eg higher education, high medical expenses, disability etc. Owner might also qualify for a Roth contribution as the income limits are higher for a Roth contribution. If so, perhaps taxpayer should consider recharacterizating the contribution as a Roth contribution.