roth IRA excise tax
Facts:
Taxpayer made a 2015 timely contribution to his Roth IRA and applied it to 2014 tax year. Later, he learned that he was ineligible to make a contribution to his Roth IRA because of his income. He has applied it to the 2015 tax year.
If he finds that his income in 2015 is high enough to disallow the Roth IRA contribution for 2015, then will he be eligible to apply it to 2016? And, will he be able to withdraw it timely to avoid an excise tax on his 2015 return?
thanks for your help
Permalink Submitted by Alan - IRA critic on Mon, 2015-06-15 23:48
If he is using Form 5329 to pay the excise tax for the year of contribution, the option to apply the contribution using the form continues from year to year until he is eligible. But he would owe the excise tax each year until the year he is eligible for the contribution. In any of these years he can stop the cycle by withdrawing the excess amount from the IRA. Once the excise tax is paid, any earnings on the contribution are allowed to stay in the Roth. Since the original contribution was made in 2015, he alternatively could have asked the custodian to recode the 2014 contribution as a 2015 contribution. That would eliminate the 5329 for 2014, and the above sequence would then not begin until 2015.