Options for Excess Traditional IRA Contribution after 10/15- Removal of Excess or Forced to Make Non-Deductible

Submitted by Jessica DeBold on Wed, 2022-11-02 11:59

We have a client who made a $7,000 contribution (client is 50+) in 2021 with the intention of making a deductible IRA contribution. The client extended filing her 2021 taxes, she realized she was NOT eligible to make a deductible contribution until the extended deadline. She filed her taxes without taking a deduction for the contribution but also did not file an 8606 reporting a non-deductible contribution. I know that she can file a 2021 Form 8606 at this point and make this a non-deductible contribution and will likely not receive the $50 penalty from the IRS. My question is can she still withdrawal this as an “excess contribution” after 10/15 by removing the $7000 (no adjustment for gain/loss) and pay the 6% excise tax? I question this due to the definition of an “excess contribution” in Pub 590-A because our situation doesn’t meet that definition since it is not more than $7,000 and not more than taxable compensation. So does that mean her only option is to file an 8606 and make this non-deductible? Or am I reading too much into the definition of “excess contribution”?

But then I read this portion in 590-A and it confuses me all over again!

Excess Contributions Withdrawn After Due Date of Return
In general, you must include all distributions (withdrawals) from your traditional IRA in your gross income. However, if the following conditions are met, you can withdraw excess contributions from your IRA and not include the amount withdrawn in your gross income.
• Total contributions (other than rollover contributions) for 2021 to your IRA weren’t more than $6,000 ($7,000 if you are age 50 or older).
• You didn’t take a deduction for the excess contribution being withdrawn.
The withdrawal can take place at any time, even after the due date, including extensions, for filing your tax return for the year.

Does this mean I can take out the $7,000? If so, doesn’t the 6% excise tax still apply? If so, I feel like that should have been included in that portion of the 590-A.

Thank you all in advance! Alan, I hope you see this one!



Submitted by David Mertz on Wed, 2022-11-02 12:57

  • This is not an excess contribution.
  • The deadline to remove this contribution was October 17, 2022.
  • The only option is to file 2021 Form 8606 to report the nondeductible traditional IRA contribution.

Submitted by Jessica DeBold on Thu, 2022-11-03 11:36

Thank you for confirming, that is exactly what I was afraid of. 

Submitted by Sheri Karpa on Wed, 2022-11-02 17:22

I apologize, but I am confused by your answer. If the Pub. 590-A says: “The withdrawal can take place at any time, even after the due date, including extensions, for filing your tax return for the year”, then why is the only option to file the 2021 Form 8606 and they don’t have an excess contribution? They never intended to make a non-deductible contribution and the IRS Pub states they can remove it after the filing deadline, so I am confused about your answer to this question. Thanks for your patience and guidance. 

Submitted by David Mertz on Wed, 2022-11-02 17:39

  • That statement in Pub 590-A is in the section discussing *excess* contributions withdrawn after the due date (pursuant to section 408(d)(5) of the tax code).  The client did not made an excess contribution to which this statement applies.  It’s only an excess contribution if it is not supported by compensation or it exceeds the annual contribution limit.  The fact that the contribution was not intended to be nondeductible does not make it an excess contribution.
  • With no excess contribution having been made, a distribution made now (after the extended due date of the tax return) would be an ordinary distribution subject to prorating on the Form 8606 for the year in which the distribution occurs and, if under age 59½ and no other exception applies, to a 10% early distribution penalty.

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