Excess Roth IRA contribution

[BP.]

New client picked up her tax returns and mentioned that her husband had attempted to make a Roth IRA contribution for himself for 2013, but it was declined by the fund company because AGI was too high.

They wanted me to ch*ck if they would have been eligible for 2012, because she said he did make a 2012 Roth contribution, with the same fund company. Turns out that due to AGI they were ineligible for 2012 as well.

My question is how would the excess contribution be discovered if not stopped by the fund company? Does IRS discover it and send a notice when the 5498s come out? Do financial institutions routinely try to determine eligibility at the time a contribution is attempted?

Thanks!
Happy 15 April!

PS- I use the same fund company as this client, and as far as I can tell, they've never tried to determine eligibility for my SEP-IRA contributions.

[JohnH]

My credit union required me to sign a statement that I was eligible to make a Roth IRA deposit when I first opened the account, but they didn't require me to furnish any amounts. (the gave me the old "ask your tax advisor" admonition, but I ignored it just like all my clients do). But then when I did the next year's transfer online, I was not asked to verify anything.

Wonder what your client will do if their mutual fund company wants to send them a refund. Since we 're prohibited from saying the word anymore, how can we tell them to cash the ch**k?

[Roberts]

The fund company will send out a valuation notice which showed the 2012 contribution. I'd assume the IRS would receive a copy since it's required by the IRS to send it to clients. Just how difficult is it for the IRS to cross match income on 1040 / W-2 information and that statement they've received?