Earnings on Excess Contributions
Just discovered that my client made an excess contribution to his IRA of $2400 on March 3. Since that time, the account is up 0.4%, but the excess contribution has sat in the money market since it was deposited and has earned $0.01. When taking out the excess, I believe we need to account for the earnings or loss on the contribution since it was made. Do we take out $2400 plus 0.4% of $2400, or $2400.01 since the contribution has only been in the money market fund?
Permalink Submitted by Alan - IRA critic on Tue, 2017-03-21 22:41
The earnings are based on the gain or loss of the entire IRA account that received the contribution, not just the MM fund the contribution was invested in. The custodian will calculate the earnings or loss in most cases and the results will fluctuate right up to when the calculation is done. Today’s steep market loss may result in a loss if client is in stock investments. In other words, the client should not be attempting to calculate the earnings or loss unless the custodian requires him to. Note that since this excess contribution was made in 2017, any gains will be taxable in 2017 even if the contribution was for 2016.