IRA - fixing Excess Contribution

[Bill Tubbs]

Client did the following ROTH IRA contributions:
9/20/07 at Bank -- $4000 contrib for 2007
4/7/08 at Mutual Fund -- $4000 contrib for 2007; $3000 for 2008
8/8/08 at Mutual Fund -- $2000 contrib for 2008
As you can tell, the 4/7/08 $4000 was an Oops and resulted in an overcontribution for 2007 (allowed was $4000 for 2007 and $5000 for 2008). In December 2008 client realized the error and my recommendation was to:
1) recode the $4000 on 4/7/08 to a 2008 contribution (which would then be $4000 for 2007 and $9000 for 2008)
2) do an excess contribution withdrawl for 2008 of $4000 (which would then be $4000 for 2007 and $5000 for 2008).
I suggested that course of action to avoid the Excess Contribution tax.

Mutual Fund decided to instead withdraw the $4000 4/7/08 contribution (which, BTW, resulted in a check of about $2600 because of the market slide). In their eye it was the same effect. Is this perfectly fine? Would this result in Excess Contribution tax being owed at all?

Thanks,
Bill

[Bill Tubbs]

Anyone?

Anyone know where I can find an answer to this?

Thanks,
Bill

[Kram BergGold]

Question

What was the date of the $4,000 / $2600 withdrawal from the mutual fund?

[Bill Tubbs]

Withdrawl

Kram, thanks for stopping by.

The withdrawl was Dec 2008.

Bill

[Bill Tubbs]

Anyone...

have any thoughts on this?

[veritas]

Sounds like

a 6% penalty for an excess contribution since it was not withdrawn by the due date of the return including extension.

See page 13-10 of TTB for a worksheet.

[Bill Tubbs]

excess contribution penalty

That's exactly why the mutual fund company was instructed/asked to recode the 4/7/08 contribution as a 2008, so that there wouldn't have been an excess contribution for 2007. And then the 2008 contributions would have been in excess and that excess withdrawn by the 2008 tax return due date.

Main question is: can the contribution be recoded from a 2007 to a 2008 contribution at this point?

Bill