Made contribution but had no earned income
Investor made a 2013 contribution to his IRA during 2013. As his CPA is completing his taxes it was pointed out that the investor had no earned income for 2013. Can this contribution be backed out? Individual has not yet filed 2013 taxes and therefor has not taken any IRA deduction.
Permalink Submitted by mk foss on Wed, 2014-10-15 20:54
the investor should remove the contribution plus earnings on it ASAP. If the amount is still in the account at 12/31/14 he/she would owe a 6% penalty on the contribution. The 6% penalty applies every year until the excess contribution is removed.
Permalink Submitted by Alan - IRA critic on Wed, 2014-10-15 21:03
Actually. TODAY was the deadline to request a return of excess contribution to avoid a penalty. If investor is in western time zone there might still be an outside chance if the IRA custodian will accept a phone request. Any earnings on the contribution would be taxable and subject to penalty on his 2013 return, and the deadline for that is also TODAY, so this does not look promising. Assuming it is too late, investor would owe a 6% excise tax for 2013 on Form 5329 attached to the return. If investor has earned income in 2014 and has not made a 2014 contribution yet, he could apply the excess contribution from 2013 to 2014 and this would eliminate the need for a distribution of any kind. Otherwise, he must withdraw the excess amount (no earnings required ) before 12/31 to avoid a second excise tax for 2014. Am sure CPA considered a spousal contribution if that was possible.