2015 Excess Contribution
Client made a 2015 $6,500 Roth IRA contribution and MAGI was to high. Client informed IRA provider April 2017 of wish to assign 2015 IRA contribution as a 2017 IRA contribution. Their response was no tax reporting would be done by them since request past tax file deadline. She could leave in IRA but would need to file Form 5329 to inform IRS of her assignment from 2015 to 2017 and pay excess 6% penalty for years 2015 and 2016.
I don’t think client ever relayed this to her tax preparer. Is it accurate client could leave funds in IRA and assign to a different tax year without physically removing as told to her? It seems logical this could be true but client would need to report to IRS and if so is the 5329 Form the accurate reporting form?
I could see the IRS needing to see a 1099R showing excess distribution removed but may create unnecessary trading costs to a client to simply put back hence my belief IRA provider gave her accurate information but client may have failed to communicate this with her tax preparer.
Permalink Submitted by David Mertz on Thu, 2018-11-15 14:25
The IRA provider is required to have reported on a 2017 Form 1099-R a regular distribution of $6,500 (code J, T or Q) and on 2017 Form 5498 a regular Roth IRA contribution of $6,500. The distribution is reportable on the client’s 2017 tax return (on Form 1040 line 15a but not on line 15b) and will appear on the 2017 Form 5329 to eliminate the $6,500 excess carried forward from the 2016 Form 5329. If the distribution was a nonqualified distribution it also must appear on the client’s 2017 Form 8606.
Permalink Submitted by MIKE KRUCHTEN on Thu, 2018-11-15 15:16
The IRA firm stated client must do tax reporting after tax file deadline they do no such on excess contributions and its a large firm used by many. Another firm also confirmed they would do no such reporting also due to excess contribution removal after tax file deadline. If accurate dont know how client would get 5498 and 1099R forms as you stated above without simply doing a distribution and now to late to make a 2017 contribution hence client was informed about carry forward method.
Permalink Submitted by Alan - IRA critic on Thu, 2018-11-15 15:26
I think DMx read the last paragraph and thought that the 6500 was distributed as the response reflects that happening. Removal of the excess contribution can be done by either distribution or by using Form 5329 to report that the excess was applied to a later year (2017), so the IRA custodian was correct. When this occurs, the custodian does nothing, does not even have to be contacted. Form 5329 is filed (no 8606) and the 6% excise tax does not apply to 2017, but does to the earlier years. However, in order for the 2017 5329 to be correct, the client must qualify for a 2017 Roth contribution by having MAGI within the limits.
Permalink Submitted by David Mertz on Thu, 2018-11-15 15:59
Yes, I was confused by the custodian being involved at all. If the custodian did anything, it would have to be as I indicated. But Alan is right, if the custodian did nothing (the proper response by the custodian under the circumstances), only reporting on Form 5329 is required.
Permalink Submitted by MIKE KRUCHTEN on Thu, 2018-11-15 16:12
Thanks for the very quick responses.