Removal of Excess of a Rechar
The client made an IRA contribution after age 70 1/2 for 2014. We caught their error and recharacterized that in February, sending it to their Roth IRA for 2014. They had unexpected income and their CPA tells them now that they are not eligible for a $6500 contribution, but only for $5000. They have asked me to assist with removal of excess. My question is about the amount of excess. The rechar included earnings of $30, so $6530 moved into the Roth. Do I need to consider that $30 and remove principal of $1530 plus earnings or do I simply take out $1500 and earnings associated with that? Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2015-04-13 19:28
The excess contribution will be 1500, and the custodian should calculate the earnings on that portion of the original contribution. If the earnings are still unchanged at $30, then about $7 would be distributed as earnings. The calculation will be simpler if this was a new Roth account with no prior balance. If the original TIRA contribution was made in 2014, then the earnings are taxable in 2014 as well, and hopefully the small added amount of income will not further reduce the permitted Roth contribution for 2014.