Excess IRA Contribution
Good Afternoon
I have what I hope are a couple of general questions regarding excess IRA contributions.
An account owner that made an excess IRA contribution for 2012 has until October 15th 2013 to withdraw the excess (including gains) otherwise a 6% penalty tax is assessed.
Questions –
Does the 10% early withdrawal penalty apply to the excess and/or the gains?
Is the gain included in 2012 income (contribution tax year) or 2013 (distribution year)?
A 1099-R/5498 overview would be appreciated. I am trying to figure out the reporting.
Thank you
Permalink Submitted by Alan - IRA critic on Wed, 2013-02-20 19:48
The 10% penalty only applies to the earnings. The gain and penalty are reported for the year IN WHICH the excess part of the contribution was made, not necessarily the year FOR WHICH the contribution was made. The 1099R will be coded in Box 7 to indicate which year the distribution needs to be reported. If the excess portion of the contribution was removed in 2013 there will be no 1099R until Jan, 2014. Therefore, an explanatory statement needs to be included on the 2012 taxes explaining the excess contribution and corrective distribution, and the amount of earnings (if taxable in 2012) is determined from the IRA activity statement or on line IRA account history report. Then, when the 1099R finally is issued in Jan, 2014 it can be ignored as long as it agrees with what has already been explained and reported on the 2012 return.