Discussion:Excess Roth IRA Contribution Withdrawal

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Discussion Forum Index --> Basic Tax Questions --> Excess Roth IRA Contribution Withdrawal
Discussion Forum Index --> Tax Questions --> Excess Roth IRA Contribution Withdrawal

JGCPACFP (talk|edits) said:

6 March 2009
I have a client who opened up a Roth IRA in 2008 and made a $5,000 contribution. As it turns out, they are not eligible for 2008, due to AGI limitations. However, due to stock market losses, their account is below the $5,000 that was contributed. I have considered two ways to handle this situation:

1) Withdraw the remaining balance in the account and not report anything on the return

2) Withdraw the remaining balance in the account; apply the 6% excess tax on the difference between the $5,000 and the remaining balance; deduct a loss for the difference between the $5,000 and the remaining balance

Any input would be appreciated.

Hunter07 (talk|edits) said:

6 March 2009
I have handled this situation by putting the amount withdrawn on line 15A, zero on line 15b and attaching a statement explaining that excess 2008 Roth IRA contributions were withdrawn, less losses incurred prior to April 15, 2009. No penalty.

David1980 (talk|edits) said:

6 March 2009
Another possibility would be to recharacterize the Roth IRA contribution as a Traditional IRA contribution. Won't be deductible, but has no issue with the decline in value.

Atkeller (talk|edits) said:

6 March 2009
Rather than withdrawing the funds, they can do a Direct Rollover to make it a 2009 Roth Contribution within the same account. The best time is to do this before 4/15/09. The trustee for the fund can provide them with an "IRA Return of Excess Contribution" form. They need to check the box to apply 100% of the 2008 contribution towards 2009 contribution. Tell them to be sure not to fund their Roth IRA for 2009, because it will already be "funded" for the the original $5,000 contribution (even though that is not the current value due to market being down). If they withdraw, they lose money, pay penalty, etc. A rollover leaves the money in the fund, just applies the contribution to a future year.

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