| |
You are here: Experts > People/Relationships > Retirement Planning > Retirement Planning > excess roth IRA contribution
Expert: David M Iannopollo - 10/22/2009
Question
Both my husband and I made a genuine error. In April 2009 we each contributed the max for us to an IRA attributed to Tax Year 2008. I forgot that we each opened an IRA with a bank CD in July of 2008 attributed to 2008. Our April 2009 addition(s) to existing Fidelity IRA(s) should have been our contribution for 2009. We contacted the IRS by phone (and by visit to the local office) October 19 and October 21 this year after discovering the error on October 16 (past the six month point, we discovered, as we timely filed our 2008 taxes in April 2009. We CANNOT get clear directions from either IRS or Fidelity on how to resolve this. Looks like we will owe the 6% penalty - and do we report that NOW on the Form 5329 for 2008??? The IRS local office told us we could "rollover" the contributions to a new IRA - which doesn't make sense to us but we would love to be able to do that and "rollover the amount" to our same Fidelity IRA as a 2009 contribution as we're trying to "simplify" the number of different IRAs that we have, as well as regular CDs. But it seems to me that we need somehow to totally withdraw (take a distribution) from our Fidelity IRA in the amount of excess ($6000 for each of us) and then... what?? rollover to a new Roth IRA instrument and "declare" it as our 2009 contributions. If we do this would any gain realized with the Fidelity IRA addition between April 2009 and date we secure a new Roth IRA be taxable (assume yes?) and handled with our 2009 tax year filing. We are frightened about how little guidance there is on what was a simple dumb mistake. We want to handle it clearly and cleanly and quickly. Would truly appreciate any advice you can give. It is confusing since, had we correctly designated this as a 2009 contribution when we wrote our checks in April of 2009 the issue would be moot and we have gained NOTHING by having wrongly directed this to be a 2008 contribution. Again, thanking you in advance for any direction you can provide.
Answer
Hi Kathy,
First off, please realize that I am not an accountant so this would not be my area of expertise as I do not do taxes or give tax advice.
Call the company that handles your Roth IRA. They will likely point you to a form that you then fill out. All you do is fill in the amount by which you overcontributed and tell them what assets to sell in your Roth. Then, they cut you a check, and the IRS is unable to hit you with additional penalties. You’ll also get a 1099 with the withdrawal amount.
One thing to keep in mind is that the amount you withdraw is based on the current value of the account. If, for example, you overcontributed $1000 to an account that had $9000 and the total value of the account rose by 5% to $10,500, then you would actually withdraw $1050—not $1000. You'll pay tax on the difference. Conversely, if the total value of your Roth fell, then your withdrawal will fall by the same percentage.
As I mentioned, I would double check with a CPA first.
You can use the amount you get back to fund your Roth for 09. A quick word of advice. I would rethink having a lot of money in CD's. There are alternatives just as safe if not safer that will give you a much better rate of return. Of course, your bank won't tell you that. If you would like to learn more, I can be reached at the address below. Good luck!
Dave
diannopollo@twcny.rr.com
Add to this Answer Ask a Question
|
|
