Earnings on Excess Roth Contributions
Can anyone tell me if the earnings on 10+ years off excess roth contributions are to be distributed along with excess contributions? If not, is there somewhere in the code that stipulates this?
Can anyone tell me if the earnings on 10+ years off excess roth contributions are to be distributed along with excess contributions? If not, is there somewhere in the code that stipulates this?
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Permalink Submitted by Alan - IRA critic on Wed, 2017-06-21 23:42
Compare Sec 408(d)(4) with 408(d)(5). The former describes return of excess contributions with earnings prior to the due date. The latter describes return of excess contributions after the due date, and earnings are NOT included with that distribution. Right now, 2016 and 2017 are the only years for which excess contributions can be returned before the due date. Another way of stating this is that when the 6% excise tax is due because the correction was NOT made by the due date then earnings stay in the Roth. The return of earnings by the due date is mutually EXCLUSIVE with owing the 6% excise tax. Note that if you asked for a 2014 excess contribution to be returned, the Roth custodian could not even process it or code a 1099R to reflect it. For these old excess contributions, do not even mention a year or refer to an excess contribution, just request the dollar amount of the old excess contribution to be distributed. The 1099R will not reflect a corrective distribution code, and you end the excise tax by reporting the distribution on Form 5329 as well as Form 8606.
Permalink Submitted by Dustin kaufmann on Thu, 2017-06-22 14:20
Roth ‘ s are governed under 408A, but assume since the code, under this section, only makes reference to 408 (d) 4 under Distributions, you revert to 408 (d) 5 for corrective action after due date of return, even though this is a roth?Thank you for the detailed response. I seem to be getting mixed responses from quite a few professionals out there.
Permalink Submitted by David Mertz on Thu, 2017-06-22 14:58
A Roth IRA is an IRA that is subject to all of the regulations under section 408 except where section 408A specifies differences (stated in section 408A(a)).