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Discussion Forum Index --> Tax Questions --> Excess contrib to Trad IRA
LJACPA (talk|edits) said:
| 17 February 2006
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| I should know this, but I don't. -Taypayer and spouse both retired in 2004. -He received $18 in wages in 2005; rest of income from pensions; she received no earned income. -He turned 59 in October of 2005. -He contributed $4,000 to a Traditional IRA. My questions: -Is this considered an excess contribution? -Is our only remedy to withdraw the excess ($3,982) by the due date? -If he withdraws the excess timely, we don't have to include anything in income and the early withdrawal penalty doesn't apply, correct? -Since he contributed in May of 2005, there will be earnings on this that also have to be withdrawn, but from what I've read, that amount has to be included in income in 2005 (how?) and is subject to the early withdrawal penalty. Please help!LJACPA 15:28, 17 February 2006 (CST)
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Warren (talk|edits) said:
| 17 February 2006
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| There will be a 1099 issued showing the entire distribution and the taxable portion (earnings). It is not subject to early withdrawal penalty.
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LJACPA (talk|edits) said:
| 18 February 2006
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| Are you certain about the penalty? I understand and agree with the 1099 (and believe that we will have to wait on information from the trustee once the excess is withdrawn, because these earnings (from the date of contribution through the date of withdrawal (2005 to 2006) will need to be reported in 2005. But the fact that he was less than 59 1/2 still concerns me that the 10% penalty will apply. Any idea where I can look this up? Tried Quickfinder and Pub 590 and both seem to agree that penalty does apply. Thank you for your response and I'm sorry to doubt you, just hope I can get another opinion. Thank you.LJACPA 11:02, 18 February 2006 (CST)
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WESR (talk|edits) said:
| 18 February 2006
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| hi warren is correct ira contribution for which no deduction has been taken is w/d before due date of tax return is not a taxable distribution 408d4 and not s/t penalty. earnings only are subject to tax and penalty. irs notice 87-336. dont know and have time to look up mechanics of 1099 and when trustee will send out bye
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LJACPA (talk|edits) said:
| 20 February 2006
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| Thank you, that clarifed what I was asking. We are not going to deduct the excess contribution, will w/d prior to due date and will only report earnings on 2005 return, subject to both tax and penalty.
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