Correcting an excess Roth contribution
An investor contributed $5k to their Roth IRA in March 2013, and attributed it to the 2012 tax year – but realize now they weren’t eligible to contribute for 2012 (or since then, and don’t expect to be in the future). Fixing it now (they haven’t filed for 2014 yet), is the only solution to withdraw the $5k? And would they owe 6% on that for 2012, 2013, and 2014?
Permalink Submitted by Alan - IRA critic on Fri, 2015-03-20 00:44
Distribution is the most viable solution, or the 18% they already owe with possible late interest tacked on will continue. They could apply the excess to a future year, but of course need to have earned income and MAGI below the Roth limit. The next excise tax is not incurred until 12/31, so no rush to take the distribution at this time, but should distribute it before year end. At least any earnings on the contribution can stay in the Roth. And the distribution itself will be tax free unless the regular contribution balance has already been distributed. Note that an excess contribution also cannot start the Roth 5 year clock…