Roth contribution

[skhyatt]

Filed a return for client. After efiling, found out that during the year when she wasn't married, she had been contributing to a Roth IRA. She got married toward the end of the year and with joint income, allowable Roth would be limited, so now she has over contributed by $320. From my research, I will have to do an amended return to either pay the excise tax or have her withdraw the excess and pay tax on the earnings and the 10% penalty.

I guess my question is, if the money is withdrawn in 2008, but before the 4/15/08 filing deadline, do I still have to amend the 2007 return or can I take care of the transaction on the 2008 return?

For the little amount of money involved, it might be better to just pay the 6% excise tax, but just want to be sure that I would have to file an amended for 2007. No way to do this in 2008? Doesn't appear so from what I can find.

[winnie]

eligible for the $320 contribution in "08?

Do you think she will be eligible for the Roth amount in 2008? It is kind of a pain in the behind. Directions for Form 8806 give good examples on how to treat these on the 2007 return. It makes 07 a pain. Had not really thought about just paying the excise tax and moving on. If you are pretty sure she would be eligible to contribute in 08, that sounds like the cheapest thing to do.

[skhyatt]

with their AGI probably going to be about the same next year, she would be eligible to contribute about $1,080 to her Roth if she wished, although she has stopped altogether now, and only contributes to her company 401K. So, she could clear out the $320 next year, but I think the excise tax is still owed for 2007, unless I'm wrong on that. I hope I'm wrong, as it would be a pain.

[Burke]

with their AGI probably going to be about the same next year, she would be eligible to contribute about $1,080 to her Roth if she wished, although she has stopped altogether now, and only contributes to her company 401K. So, she could clear out the $320 next year, but I think the excise tax is still owed for 2007, unless I'm wrong on that. I hope I'm wrong, as it would be a pain.

See QF 14-4, as long as you pull out the excess contribution & earnings on the excess contribution (or credit it to 2008) before the due date of the return 4/15/08, there is no tax. The problem is getting the bank (or whoever) to reclassify it. Also the excess amt is not included in taxable income.

[skhyatt]

See QF 14-4, as long as you pull out the excess contribution & earnings on the excess contribution (or credit it to 2008) before the due date of the return 4/15/08, there is no tax. The problem is getting the bank (or whoever) to reclassify it. Also the excess amt is not included in taxable income.

are you saying to have the bank put it down as 2008 income? seems like if you withdraw the money in 2008, that's the way they would report it anyway?

[David1980]

If they withdraw the excess contrib with earnings

The earnings withdrawn would be taxable in the year the excess contribution was made. So taxable on the 2007 tax return. (Hence why winnie said "It makes 07 a pain.")

[skhyatt]

The earnings withdrawn would be taxable in the year the excess contribution was made. So taxable on the 2007 tax return. (Hence why winnie said "It makes 07 a pain.")

Was just trying to clarify what the previous poster had said. From what I have found, regardless of if the excess is withdrawn or left in and pay the 6% excise tax, either way, the excess contribution was made in 2007, so it seems that is when it should be reported.

Having said that, if the client wants to withdraw the funds, they would be withdrawn in 2008. I'm wondering if the bank or custodian would report it as a 2008 transaction.

[David1980]

They would probably report it to taxpayer in 2009 on a 1099R for 2008 box 7 code code P "Excess contributions plus earnings/excess deferrals taxable in 2007."

[S T]

Reallocate Roth Contributions

Is there such a thing as reallocating like we do on Traditional IRA's, in otherwords move it from one year to the next. So if over contribution in 07, have the financial instituion reallocate that portion to 08? I have had some clients move contributions on Traditionals from one year to the next, when they were over contributed, of course prior to 4/15.

Sandy

[skhyatt]

I would assume if they did that, that they would re-allocate the income with it to 2008? Is that allowed? I think I read in TTB, that you could treat the excess contribution as having been made in the following year, but would still have to pay the excise tax of 6%. But in my clients case, it might be cheaper to do it that way. It's not a huge amount of money.