Roth IRA Excess contribution tax obligations
We have two clients, a married couple, who contributed excess to their Roth IRAs in 2009. In January 2010 it was brought to our attention and we removed the excess contributions, along with the earnings, and moved it to their joint account with the same company. Then a couple days later the same amount was moved back into their Roth IRAs and was coded as 2010 contributions. They are both under 59.5, and they both received 1099R forms this year showing a taxable amount as well as 5498 forms. What are their tax obligations?
Permalink Submitted by Alan Spross on Tue, 2011-04-05 19:39
If the 1099R is correct, it should be coded to show the correction of an excess contribution, probably P and J in Box 7.
The taxable amount shown may be incorrect, as only the earnings that were distributed are taxable and subject to the 10% penalty. But since the excess contribution was made IN 2009, those earnings were taxable on the 2009 return, not on the 2010 return. The 2010 return is unaffected, but they may have to amend their 2009 return if the taxable earnings were not reported on line 15b of that return and the 10% penalty on the earnings added on line 58.
Of course, they must also hope that their 2010 contributions are not excess as well.