Found out my client over contributed to her 2004 Roth IRA. (A parent also contributed in her name.) She didn't withdraw the excess before the due date. Question, do I report & pay the 6% excise tax on her 2005 tax return (Form 5329) or can I file a 2004 Form 5329 now to report? And will she owe interest on this?
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The 6% excess contribution penalty applies equally to both traditional and Roth IRAs. It applies each year the excess is allowed to remain in the account. So if there was an excess in 2004 that was not withdrawn by the due date, including extensions, then the 6% penalty applies on the 2004 tax return. You can pay the penalty simply by filing a 2004 Form 5329 by itself. You can correct the situation and not pay the same penalty in 2005 if you undercontribute the allowable amount in 2005.
See TTB, page 13-11 for more details on how to fix this.
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