IRA contribution to inherited IRA in error.
A 33-year-old client contributed $6,000 to a non-spousal inherited IRA by mistake in 2022.
The client believes his financial advisor inadvertently added his yearly IRA contribution to the wrong account.
The client inherited the IRA in 2021 and he took a distribution of about 20% of the inherited IRA in 2022.
What are the ramifications and what corrective steps need to be taken?
Can the 2022 contribution and earnings be removed before the extended deadline?
Does this error affect the beneficiary’s future RMD payment schedule.
is there a penalty for the excess contributions?
Thank you,
Permalink Submitted by Alan - IRA critic on Wed, 2023-06-07 16:37
This is an excess contribution that must be corrected in the same manner as an excess contribution to an owned IRA account. The deadline for this is 10/15/2023 assuming the client filed their 2022 return on time or filed a timely extension. Failure will result in a 6% excise tax for 2022 and later years until the excess is removed. The 12/31/2022 inherited IRA balance was also increased due to this contribution and will increase the 2023 inherited IRA RMD. FInally, client cannot claim a deduction for 2022 for this contribution and will not have a 2022 IRA contribution, so the 2022 return will have to be amended. If there are gains associated with the 2022 excess contribution distributed with the corrective distribution, those gains will also be taxable in 2022. This will be indicated on the 1099R received next January.