Return of Excess IRA Contributions in 2015
In prior years client had been deducting contributions made to his Traditional IRA account.
His traditional IRA contributions so far in 2015 are $4333.28.
In September of 2015 his employer started a 401k plan which he plans to participate in ASAP.
Because of his high income his contributions to his Traditional IRA in 2015 will not be deductible. As a result he wishes to process a “return of excess contribution for tax year 2015” immediately and effectively reallocate this money to his 401k plan so that these contributions will be deductible.
A calculation has been performed using IRS worksheets to calculate “the amount of the IRA contributions plus the net income attributable to them to be withdrawn.” This calculation yields the amount of $4,245.62.
So this calculated amount is less than the 2015 contributions made.
So my question is, when this calculated amount is less than the contributions made (due to market decline), do you know which of the two possible amounts is to actually be distributed from his IRA account:
1. IRA contributions made in 2015 of $4333.28, OR
2. The “contributions plus net income attributable to them” of $4,245.62
Thank you for taking the time to consider this question.
Permalink Submitted by Alan - IRA critic on Fri, 2015-09-11 18:38
4,245.62 will be distributed and this is also the amount that will be reported on the 1099R. Since there is a net loss, there will be NO earnings on the corrective distribution that otherwise would have been subject to tax and penalty on his 2015 return. Technically, while the procedures and calculations are the same, this was not an excess contribution since it could have been left as a non deductible contribution or could also have been recharacterized as a Roth IRA contribution if his income was under the Roth MAGI limits. What he plans now is just a return of his 2015 TIRA contribution.