Return of Excess Deadline
Hello,
I wanted to get your thoughts on the scenario below:
IRA owner makes a prior year 2021 Roth IRA contribution in February of 2022. The IRA owner realizes they were not eligible for the contribution and needs to distribute it as a return of excess (ROE).
We know that you have until the tax filing deadline, plus extensions, to remove it without incurring the 6% excise penalty. The question is….what is the deadline to remove without incurring the 6% penalty?
I have always believed that you must remove by the tax filing deadline for the year the contribution was made for. So in this example, the contribution was for 2021 and must be removed by the 2021 deadline (even though it was physically made in 2022).
Our custodian believes that since the taxes on the earnings are recognized in the year the contribution is physically made that they would also have until the tax filing deadline, plus extensions, for the physical contribution year. So in this example, they would have until the 2022 tax filing deadline, plus extensions, to remove the 2021 contribution since the contribution was physically made in 2022.
What is your stance? Thanks!
Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2022-06-27 16:42