Removal of 2018 excess contribution to TIRA
Client made an excess contribution of $4,869 to his TIRA in 2018. He started the year self-employed, then was hired as a F-T EE with a firm that had a 401k, so he was covered by a plan at work, and earned too much to contribute to both.
The accountant is telling him he only has to withdraw the $4,869. But I know in previous years, when we could recharacterize a contribution, we had to calculate both the excess contribution and the earnings on that contribution. And those amounts are also what TD Ameritrade asks for on their form to withdraw the funds (they ask for either the gain or loss on the contribution).
I can’t tell from pub 590 what he needs to do. Please advise. TIA for your help!
Permalink Submitted by Alan - IRA critic on Thu, 2021-11-18 01:53
His contribution for 2018 is not an excess contribution, it just cannot be deducted. Client should file a 2018 Form 8606 to report the non deductible contribution, adding basis to his TIRA. Since the contribution is not excess, there is no excise tax and no need to file Form 5329 to pay an excise tax, and above all no need to withdraw any amount from the TIRA.
Therefore, other than filing the 8606 and perhaps amending later returns for a refund if he took an IRA distribution and did not apply the basis, there is nothing to do. If there HAD been an excess to be corrected, he would have owed the excise tax and because the due date for 2018 is long since passed, correction of that excess would have been just to withdraw the excess with no consideration to gains or losses. Therefore, the accountant was on the right track, other than not realizing that the TIRA contribution was not an excess contribution.