improper roth ira contribution
I was talking with a colleague last week.
She had a Roth IRA she made contributions into previously.
In 2015 she again contributed the maximum amount but did not realize since her spouse had such a good earnings year, their income was too high to make the contribution.
What are the remedies available without incurring a penalty if that is possible.
Rob Shevlin
Permalink Submitted by Alan - IRA critic on Tue, 2016-06-28 17:16
If she filed her 2015 return on time or filed an extension by 4/18, she can either request return of the 2015 contribution with any earnings OR recharacterize the contribution as a TIRA contribution, which probably will not be deductible. If she has no non Roth IRA balance, she could then convert the recharacterized contribution back to a Roth IRA, paying taxes only on the gains since the original contribution. If she simply has the contribution returned, she will owe tax and penalty on any earnings received with the returned contribution. Her deadline to complete either of the above two actions is 10/15/2016. Either action will avoid the 6% excise tax for an excess contribution.
Permalink Submitted by Rob Shevlin on Tue, 2016-06-28 17:45
Thank you. That seems to make a lot of sense.I will share with her. I knew they had other IRA accounts so a backdoor roth might not work or might be cumbersome. RS