Excess IRA contributions

Submitted by Gerard Stellwagen on Thu, 2017-01-12 11:40

Married taxpayers filing joint 1040 – she has $20,000 of earned income, he has none. In 2015 they contributed $6,500 each to regular IRAs; they also converted $9,000 to a Roth. In addition, they are making $600 (each) monthly contributions to their Roth iRAs. Clearly, they have been making excess contributions. What should they do to stop the penalties from running?



Submitted by Alan - IRA critic on Thu, 2017-01-12 22:56

  • For any excess contributions made in 2015, the extended due date has passed for timely correction. After the due date when there are excess contributions to both types of IRAs, the excess amounts are deemed to be the Roth contributions. The conversion is immaterial. A 6% excise tax on a 2015 5329 for EACH spouse must be filed. 6% of 7,200 (600 per month) or 432 each is due. Stop the monthly contributions ASAP.They can still remove ALL 2016 contributions with allocated earnings. This opens up 2016 for assignment of 6500 of the 2015 Roth excess contribution to 2016 and will eliminate the excise tax on that amount for 2016, but they will still owe the tax on any amount in excess of 6500 contributed to the Roth for 2015. This would go on a 2016 5329. If there remains 700 excess from 2016, they can reduce their 2017 contributions by 700 and assign the 2016 excess to 2017 on a 2017 5329. Am not sure exactly what they contributed for 2016, so the above assumes they just continued the 600/month contributions through end of 2016, did not make other contributions, and still had the earned income in 2016 to allow contributions. Further, he is using a spousal contribution from wife’s earned income in both years. 

  

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