Hello,
Husband and wife each made $2,000 excess Roth contributions for 2020. Husband passed in February 2021 and his wife as primary beneficiary transferred his Roth balance to her account. Can we combine the contributions for purposes of excess earnings calculation or do we need to calculate each separately?
Yes the excess contributions and earnings are to be removed. So when I combine the accounts for purposes of the earnings calculation I would take the value of each Roth immediately before the contribution and add them together? Also do I need to account for the funds moving between each account….I would think not.
Correct. Use the total balance of both accounts plus the excess contribution on the day of that contribution, plus any other interim contributions to either account for the adjusted opening balance. Ignore transfers between the accounts.
Permalink Submitted by Alan - IRA critic on Wed, 2021-04-28 23:49
His Roth is closed, so the only choice is to correct the excess from her Roth at this point. Are the excess amounts to be returned with earnings or recharacterized as TIRA contributions? The former is simpler unless wife also has a TIRA. In addition, on their 2020 joint return, whatever action is taken should be indicated in an explanatory statement for each spouse, so the IRS can figure out what happened.
There is no specific IRS guidance on how to execute the recharacterization or removal math and they have proven not to be picky about this, so you could combine the accounts if easier since all is in one Roth IRA now. Pub 590 A does include a statement that the executor can make the election to recharacterize. In this type of situation with transfers made to different Roth accounts, the custodian will usually have to improvise to reach an equitable result.
Since 2021 is last year to file jointly before her tax rate rises, she may want to consider a 2021 conversion.