ROTH EXCESS CONTRIBUTIONS FOR 14 YEARS! Regular tax & 6% tax too?

[kathyc2]

Makes you wonder why vendors even report it. Had the same problem. 78 year old with no income takes out a ROTH. Do the custodians/sellers of these things even ask such a question when they apply for them?

I just can't believe some basic things IRS computers aren't programmed to catch. Had a situation a few years ago regarding AOC. Client didn't know how many years parents had claimed AOC and it was a rather ugly situation so called IRS asking if they could tell her how many years it had been claimed for her and was told they don't track number of years by student SS#, just by person claiming SS#. WTH?

[Burke]

Makes you wonder why vendors even report it. Had the same problem. 78 year old with no income takes out a ROTH. Do the custodians/sellers of these things even ask such a question when they apply for them?

[kathyc2]

The IRS computers didn't kick out a notice in all those years of receiving 5498's and no earned income?

[RitaB]

Well, yikes.

All of his ROTH distributions are taxable since they weren't allowed in the first place.

Is he subject to the 6% excise tax? I'd need more concrete info to calculate that, namely his detailed years and dollar amounts - But I want to be sure I'm telling him the right thing.

His contributions are NOT subject to income tax, as they were not tax deferred when contributed (the income tax has already been paid), and yes, he owes 6% excess contribution tax per year on excess amounts not withdrawn.

Wowzers, I'm glad you're telling him, not me. Here's an article that may help:

http://fairmark.com/retirement/roth-accounts/contributions-to-roth-accounts/excess-contributions-to-roth-iras/

[sandigi]

Client was new to me for 2013 tax year. He retired in 2001 at age 53 and has been making contributions into a ROTH from 2001 to 2014. He had -0- earned income for each of those years.

When we discussed that he couldn't contribute to an IRA if he had no earned income, he withdrew the 2013 and 2014 contributions of $13000 (6500 each year). I was expecting those 2 1099R forms, and know how to handle them. The contributions were removed in time not to be subject to the 6% tax.

He then removed all contributions and closed out the ROTH in 2014. Received $56,559.
Total amount of contributions is unknown at this point but he "thinks" maybe he contributed the maximum amount each year.
I've calculated the maximum contributions for age over 50 from 2001 to 2012 and it would be 57,000.

All of his ROTH distributions are taxable since they weren't allowed in the first place.

Is he subject to the 6% excise tax? I'd need more concrete info to calculate that, namely his detailed years and dollar amounts - But I want to be sure I'm telling him the right thing.