Reversing an IRA contribution

Submitted by Amanda Minter on Tue, 2022-09-13 21:41

We have a client, self employed, who is has an extension on his tax deadline for 2021. He is being told he actually has a negative net income for 2021 so can not contribute to his T – IRA. He made a 2021 contribution on 4/14/2022 for tax year 2021.
Can he reverse this contribution not to be penalized for excess contribution?



Submitted by Alan - IRA critic on Tue, 2022-09-13 22:51

  • He could request a return of the 2021 contribution +/- investment results. This must be completed by 10/17/2022. While there is a good chance there are no gains, if there is then the amount of gain will be taxable on the 2022 return, not 2021. 
  • Having negative AGI or taxable income does not eliminate an IRA contribution if there is positive W-2 earnings or net SE income. In such a situation, client should recharacterize the TIRA contribution as a Roth contribution, since the TIRA deduction would be worthless.

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