Excessive IRA Contributions
I met with a prospect and found out by review of one of his accounts that his previous advisor rolled $50K from a traditional IRA and $70K from a NON-IRA account into a new traditional IRA he set up for this client. This $70K was never an IRA and since these monies are now in one account(one account number) what is the best avenue to remove this money. He has not filed his taxes and asked for my help. This was done at the end of calendar year 2008. Any thoughts?
Permalink Submitted by Alan Spross on Tue, 2009-04-21 22:22
I assume the “non IRA account” was also not a retirement plan that could issue an eligible rollover distribution, but was a taxable account.
If that’s the case, there is a 70k excess contribution to the IRA, that should be corrected just like an excess regular IRA contribution for 2008. The IRA custodian should be told that the contribution is not an allowed rollover and therefore should be distributed along with the usual earnings calculation. This will result in either more or less than 70k being distributed. Providing that the prospect filed a timely 2008 extension, he has until 10/15/09 to receive the corrective distribution. If he has not filed the extension, then the corrective procedures are quite different. If that has happened, please advise.
If the extension was filed and earnings on the 70k are positive, they need to be reported on the 2008 return, and the earnings are subject to the early distribution penalty. An explanatory statement also needs to be included with the return.