Excess IRA contribution

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Subject Author Date Excess IRA contribution Vigo 01-28-2008  Re: Excess IRA contribution Benjamin Yazersky CPA 01-28-2008  Re: Excess IRA contribution Phil Marti 01-28-2008  Re: Excess IRA contribution Vigo 01-29-2008  Re: Excess IRA contribution Phil Marti 01-29-2008  Re: Excess IRA contribution Vigo 01-30-2008  Re: Excess IRA contribution Vigo 02-08-2008  Re: Excess IRA contribution Phil Marti 02-08-2008
Posted by Vigo on January 28, 2008, 8:55 pm Please log in for more thread options I just found out that my son contributed about $200 more to his Roth IRA than he was allowed to in 2007. What must he do to avoid a penalty? Can he ask the Roth IRA custodian to recharacterize $200 of his contributions toward his 2008 contribution? If there is a penalty, is that paid on his 2007 return? I assume he will pay tax, if any, on the earnings on the excess contributions on his 2008 return. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Benjamin Yazersky CPA on January 28, 2008, 9:16 pm Please log in for more thread options > I just found out that my son contributed about $200 more to his Roth IRA > than he was allowed to in 2007. What must he do to avoid a penalty? Can he > ask the Roth IRA custodian to recharacterize $200 of his contributions > toward his 2008 contribution? > > If there is a penalty, is that paid on his 2007 return? I assume he will pay > tax, if any, on the earnings on the excess contributions on his 2008 return. > > -- Withdraw the excess before you file your tax return ___________________________________ <<< Benjamin Yazersky, CPA [NJ & NY] >>> -----> real address on hobokeni or hobokenx <----- "This written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer." (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.) The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Phil Marti on January 28, 2008, 11:23 pm Please log in for more thread options "Vigo" wrote: >I just found out that my son contributed about $200 more to his Roth IRA >than he was allowed to in 2007. Exactly what made the $200 excess? It affects his options. -- Phil Marti Clarksburg, MD -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Vigo on January 29, 2008, 7:57 am Please log in for more thread options > "Vigo" wrote: > >>I just found out that my son contributed about $200 more to his Roth IRA >>than he was allowed to in 2007. > > Exactly what made the $200 excess? It affects his options. > > -- > Phil Marti > Clarksburg, MD He deposited what he made from his summer job ($3050) but when his W-2 arrived, Box 1 was $193 less because of contributions to a 401(k). He forgot that that amount was non-taxable and shouldn't have been counted as earnings when figuring how much he could contribute to his Roth. If he removes the excess before Apr. 15, does that avoid the penalty but still subject him to taxes on the earnings on that $193? -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Phil Marti on January 29, 2008, 8:19 am Please log in for more thread options "Vigo" wrote: >>>I just found out that my son contributed about $200 more to his Roth IRA >>>than he was allowed to in 2007. >> >> Exactly what made the $200 excess? It affects his options. > He deposited what he made from his summer job ($3050) but when his W-2 > arrived, Box 1 was $193 less because of contributions to a 401(k). He > forgot that that amount was non-taxable and shouldn't have been counted as > earnings when figuring how much he could contribute to his Roth. Thanks for the clarification, and congratulations on raising such a sensible, forward-looking son. Here are his options: 1. Withdraw the $193 and the earnings on it by the due date of his 2007 return. The earnings will be 2007 income even though paid out in 2008. Because of his standard deduction, it's likely that he still will pay no income tax for 2007. The earnings would be subject to a 10% premature distribution penalty. Unless he's a brilliant stock picker, it's likely that the penalty will be negligible. (BUT, see below.) 2. Assuming he anticipates at least $193 of earned income in 2008, he can do nothing. He would owe a $12 penalty even though he still pays no income tax. He then reduces his allowable 2008 contribution by $193. No notice to or action by the Roth custodian is necessary. On the surface it looks like withdrawal is the obvious choice. Before doing so, find out the amount of any fee the custodian would charge. If that fee is more than $12, he's better off with option 2. -- Phil Marti Clarksburg, MD -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted 401(K) Excess Contribution January 26, 2007, 11:52 pm excess 401(k) contribution April 3, 2007, 6:46 pm excess 401(k) contribution & W-2 April 16, 2007, 12:09 am excess contribution to 457 February 1, 2008, 11:25 am Refund of "excess" 401(k) contribution due to HCE tag January 25, 2007, 2:43 am SIMPLE IRA - Possible excess contribution? 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