Excess traditional ira contribution
I have a client that contributed to a traditional ira twice (to one account during 2013 & to another account on 4/15/14) for 2013 tax year. She also made a 2014 contribution for 2014 tax year but did not make a contribution for 2015. In order to correct the excess from 2013, I think she needs to file form 5329 for 2013 and 2014 and calculate 6% penalty. Is she required to withdraw the excess from her ira account or can she apply the excess contribution on form 5329 line 10, which then does not impose the 6% penalty for tax year 2015 and allows a deduction for her traditional ira. Is this how this works?
Permalink Submitted by Alan - IRA critic on Sat, 2016-07-23 00:59
Yes, that is correct. 2013 5329 with 1040X and 6% excise tax for 2013 excess, and same for 2014 as the 2013 excess carried over. A 2015 5329 will apply the 2013 excess to 2015, and end the excise taxes. Of course, she must qualify for the contribution in 2015 (have earned income) and the deduction is based on 2015 numbers. I am assuming that there have been NO distributions taken in 2014 or 2015 that would have reduced the excess amount.
Permalink Submitted by Cathy Earley on Sat, 2016-07-23 02:49
Hi Alan, yes she has earned income in 2015 to take the ira deduction for 2015 and there have been no distributions. Does she need to notify the custodian or fill out anything for the custodian? BTW, the custodian (Ameritrade) told her about a month ago that she could not do this, but this was available for 2016. It could be my client didn’t understand what the custodian representative said.
Permalink Submitted by Alan - IRA critic on Sat, 2016-07-23 02:55
This can all be done without any involvement by the custodian. Form 5498 reporting the contributions are never revised. Client should keep these forms but make a note on one of the 2013 5498 forms that the particular contribution was assigned to 2015 on Form 5329. However, if the 2015 tax return has been filed, it will have to be amended to claim the deduction.
Permalink Submitted by Cathy Earley on Sat, 2016-07-23 14:56
She is on extension. Thank you so much, Alan