Excess removal and recontribution

Submitted by Mark Undis on Thu, 2023-01-26 22:33

January 2022 put $7000 in a Roth IRA. In November if appeared that it would be over the contribution limit. Requested and received a return of the excess contribution. On doing the tax return a partial contribution is allowed. Can a person still contribute for 2022. E-Trade says that it can’t be done because the original contribution was the maximum. Seems to me that after excess removal the contribution limit would reset back to $7000. Am I wrong?



Submitted by David Mertz on Thu, 2023-01-26 23:23

  • You are not wrong, assuming that you did a proper return of contribution with amount distributed being adjusted for investment gain or loss on the $7,000 contribution being returned.  You probably should have already received (or will soon receive) a Form 1099-R with codes J and 8 for this returned contribution.
  • If E-Trade won’t accept your contribution, make the contribution to a Roth IRA at a different custodian.  If you choose to do so, you could then move the new Roth IRA to your E-Trade Roth IRA by trustee-to-trustee transfer.

Submitted by Brenda Murphy on Wed, 2023-04-12 21:45

Although the math resets to 0, you do not get another shot at a contribution.  That would mean that your excess removal was really not an excess ie change of mind.  Any reputable IRA custodian would give you that answer as E-trade did.  If you had contributed less than the IRS maximum and removed it you could have contributed the difference up to the IRS limit.  If you do recontribute, the IRS may question the contribution in a letter which you may respond to and see what happens. 

Submitted by Alan - IRA critic on Wed, 2023-04-12 23:03

  • I disagree. Whether the returned contribution was excess or not, if returned properly with the NIA adjustment, that contribution is treated as if it was never made. Some custodians have systems designed to prevent duplicate contributions for the same year to avoid some excess contributions, but they do not seem to reflect whether the first contribution had been returned or not. If so, they should override their system or they are just inviting the taxpayer to make the later contribution to another custodian. 
  • In the current scenario, there should be an explanatory statement with the return for the contribution year regarding the returned contribution (date and amounts). This will advise the IRS that even if they receive 5498 forms showing two contributions resulting in an excess, that one of them has been withdrawn. 

Submitted by David Mertz on Thu, 2023-04-13 12:37

  • I can find nothing in the statutes, regulations or any IRS guidance to suggest that a return of contribution is irrevocable in the same way that a recharacterization or a rollover is irrevocable.
  • Section 408(a)(1) does say that the trust agreement must require that, “no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any individual in excess of the amount in effect for such taxable year under section 219(b)(1)(A).”  Because it makes no exception for returned contributions, this could be interpreted as saying that contributions to a particular IRA in excess of the overall annual limit might not be permitted, but it would be a stretch to interpret it as saying that no contributions would be permitted to a different IRA owned by the same individual.  Section 408(d)(2) which indicates that all IRAs of the individual are treated as one contract applies only to determining the taxability of distributions under section 72.

Add new comment

Log in or register to post comments