Excess IRA Contribution
Interesting scenario.
All help is appreciated
FACTS:
Client had a 2013 Roth excess contribution – his income exceeded Roth income limits
Custodian – per account owner request – generated a check for the excess contribution (plus earnings).
Account owner unhappy about the return of excess.
QUESTION(s)
Could the account owner request the custodian to cancel the excess contribution? Instead recharacterize the Roth excess into a T-IRA. From there (if he wanted) convert to a Roth IRA?
I would think this is viable so long as
1. check hasn’t been cash
2. custodian consents
Tax Question
Assuming the recharacteriztion is doable – how is tax reporting affected?
Is an excess reported on current year (2014) or prior year (2013)?
Thank you!!
Permalink Submitted by Alan - IRA critic on Thu, 2014-10-02 00:07
The custodian is not going to reverse the distribution (unless the distribution was 100% custodian error). Had this occurred prior to 4/15, client could still have made the non deductible TIRA contribution, but now it is too late for 2013. If the 2013 contribution was made IN 2013, the earnings returned on that contribution will also be taxable in 2013, and probably subject to penalty. The coding on the 1099R for the return of contribution will indicate which year the distribution is to be reported.