Permalink Submitted by Alan - IRA critic on Mon, 2016-09-19 02:12
Up to the extended due date for a tax year, you can either request return of the contribution with allocated earnings, or recharacterize the contribution to another type of IRA (eg Roth) if you are eligible to contribute to the other IRA type. As for pro rating of distributions on Form 8606, tax software handles that fairly easily.
Permalink Submitted by Brian Camozzi on Fri, 2016-10-14 23:14
If a contribution is returned now should I put the information on the 2015 return before receiving the final paperwork?I will be filling out a 8606 for an early distribution either way.
Permalink Submitted by Alan - IRA critic on Sat, 2016-10-15 00:16
The original post is gone, so am not sure of the entire situation. If you had a contribution returned to you with allocated earnings that you made IN (regardless of the year it was for) 2015, the total amount you received goes on line 15a and the earnings go on 15b. If you received more than the contribution amount, the additional amount is the earnings, and the earnings are subject to tax and also penalty if you are under 59.5. You do not need an 8606 for this particular transaction, but you might if there was other activity in 2015. The 1099R will be issued in January and you should verify that it agrees with what you reported on your 2015 return. If you made the contribution in 2015, but it was for 2014 please advise.
Permalink Submitted by Brian Camozzi on Sat, 2016-10-15 07:17
This was a contribuion made on February 6th 2016.It was originally intended to be a 60 day rollover but I realized it was going to occur on the 61st day when I remembered January has 31 days.I called the bank and told them to make it a 2015 contribution not realizing I couldn’t take the deduction at the time.I now want to take it out rather than deal with the partially taxable IRA calculations going forward.This started when I got a surprise 1099R showing my wife had taken over $12,000 out of her IRA in 2015 $3800 of which was recent enough to roll over.The only good news is I have more than enough higher education costs to avoid the penalty.I was under the impression if I remove it by Monday I had to pay tax and penalty on the earnings on my 2015 return.Thank you for taking the time to respond BTW.
Permalink Submitted by Alan - IRA critic on Sat, 2016-10-15 17:46
Since the contribution was made in 2016 and not 2015, you have another year to remove it with allocated earnings. Therefore, this does NOT have to get done Monday, 10/17/2016. However, if you are filing 2015 on an extension you must get that filing done by this coming Monday. And for that return to be accurate, you will have to report what you expect to do with the contribution. For example, if it will be removed in the next year you would not report a non deductible contribution on Form 8606 for your 2015 return. And since any earnings returned with the withdrawal will be taxable in 2016, to waive the penalty on the earnings you must have paid the education expenses in 2016, not 2015. While this is very confusing, note that while you have another year to remove the contribution, if you wanted to recharacterize it instead, that deadline is this Monday since the recharacterization deadline is a year sooner than the removal deadline if your contribution was for a PRIOR tax year. You could not recharacterize it as Roth contribution either unless your joint income was not too high for a Roth contribution for 2015 and you filed an extension by 4/18/2016 to file your 2015 return.
Permalink Submitted by Brian Camozzi on Mon, 2016-10-17 19:10
The bank emailed me the form but it says” Recharacterization or removal of excess contribution” Is that the correct form even though it was a contribution that could have been made albeit non deductible?In other words it didn’t have to come out if I was willing to mix the deductible and non deductible contributions.I also fououng out my wife has taken out $5000 since we made the contribution of $3800 that I would like to reverse.I’m assuming I cant just use that since no calculations for earnings were done.
Permalink Submitted by Alan - IRA critic on Mon, 2016-10-17 19:31
Removal of an excess contribution and return of a contribution that is not excess, but you just want it returned are both subject to the same rules and same forms. The form they sent you is therefore correct if you want a contribution returned.
Your wife did a rollover of part of a 12,000 distribution. She cannot do any more rollovers until 12 months have passed from the date of that 12,000 distribution since only one rollover per 12 months is allowed. Now she has withdrawn 5000 more? These are distributions and totally unrelated to withdrawals of specific contributions that include earnings and specifically requested and coded as the withdrawal of a particular contribution. So it sounds like the 5000 distribution was not processed as a return of a particular contribution, but rather as a simple request to send her 5000.
Permalink Submitted by Alan - IRA critic on Mon, 2016-09-19 02:12
Up to the extended due date for a tax year, you can either request return of the contribution with allocated earnings, or recharacterize the contribution to another type of IRA (eg Roth) if you are eligible to contribute to the other IRA type. As for pro rating of distributions on Form 8606, tax software handles that fairly easily.
Permalink Submitted by Brian Camozzi on Fri, 2016-10-14 23:14
If a contribution is returned now should I put the information on the 2015 return before receiving the final paperwork?I will be filling out a 8606 for an early distribution either way.
Permalink Submitted by Alan - IRA critic on Sat, 2016-10-15 00:16
The original post is gone, so am not sure of the entire situation. If you had a contribution returned to you with allocated earnings that you made IN (regardless of the year it was for) 2015, the total amount you received goes on line 15a and the earnings go on 15b. If you received more than the contribution amount, the additional amount is the earnings, and the earnings are subject to tax and also penalty if you are under 59.5. You do not need an 8606 for this particular transaction, but you might if there was other activity in 2015. The 1099R will be issued in January and you should verify that it agrees with what you reported on your 2015 return. If you made the contribution in 2015, but it was for 2014 please advise.
Permalink Submitted by Brian Camozzi on Sat, 2016-10-15 07:17
This was a contribuion made on February 6th 2016.It was originally intended to be a 60 day rollover but I realized it was going to occur on the 61st day when I remembered January has 31 days.I called the bank and told them to make it a 2015 contribution not realizing I couldn’t take the deduction at the time.I now want to take it out rather than deal with the partially taxable IRA calculations going forward.This started when I got a surprise 1099R showing my wife had taken over $12,000 out of her IRA in 2015 $3800 of which was recent enough to roll over.The only good news is I have more than enough higher education costs to avoid the penalty.I was under the impression if I remove it by Monday I had to pay tax and penalty on the earnings on my 2015 return.Thank you for taking the time to respond BTW.
Permalink Submitted by Alan - IRA critic on Sat, 2016-10-15 17:46
Since the contribution was made in 2016 and not 2015, you have another year to remove it with allocated earnings. Therefore, this does NOT have to get done Monday, 10/17/2016. However, if you are filing 2015 on an extension you must get that filing done by this coming Monday. And for that return to be accurate, you will have to report what you expect to do with the contribution. For example, if it will be removed in the next year you would not report a non deductible contribution on Form 8606 for your 2015 return. And since any earnings returned with the withdrawal will be taxable in 2016, to waive the penalty on the earnings you must have paid the education expenses in 2016, not 2015. While this is very confusing, note that while you have another year to remove the contribution, if you wanted to recharacterize it instead, that deadline is this Monday since the recharacterization deadline is a year sooner than the removal deadline if your contribution was for a PRIOR tax year. You could not recharacterize it as Roth contribution either unless your joint income was not too high for a Roth contribution for 2015 and you filed an extension by 4/18/2016 to file your 2015 return.
Permalink Submitted by Brian Camozzi on Mon, 2016-10-17 19:10
The bank emailed me the form but it says” Recharacterization or removal of excess contribution” Is that the correct form even though it was a contribution that could have been made albeit non deductible?In other words it didn’t have to come out if I was willing to mix the deductible and non deductible contributions.I also fououng out my wife has taken out $5000 since we made the contribution of $3800 that I would like to reverse.I’m assuming I cant just use that since no calculations for earnings were done.
Permalink Submitted by Alan - IRA critic on Mon, 2016-10-17 19:31