Problem getting IRA custodian's help on calculating excess contribution earnings

Forum|Forum|6 years ago
February 19, 2020
1 reply
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Dear experts,

I understand when a Roth IRA has excess contribution the contribution and its earnings have to be removed. I was advised to not do it myself and ask the IRA custodian to do it. I reached out to the IRA custodian, my ex financial advisor, and asked her to do the calculation. It didn't really work out and I am looking for an alternative. Could someone make a suggestion?

Thanks,
Vicky

macuser_22

Alumni - Champ

You don't go to your financial advisor, you go to the account trustee at the financial institution that holds the IRA. Only the account trustee can preform a "return of contributions" and send you a proper 1099-R with the correct box 7 code of a return of contribution (code 8 or P) with the returned amount in box 1 and the earnings reported in box 2a.

You cannot preform a "return of contributions" yourself. Removing the excess yourself would probably be a taxable distribution and not a return of excess contributions.

The return of contribution (and earnings) must be completed by the due date of the tax return for the year that the contribution was for or the extended due date if a timely extension is filed.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

tdo061803Author

Level 4

Hi Macuser_22

Thank you so much for your answer. Who would be the account trustee? I have the Roth IRA account at Ameriprise.

"You cannot preform a "return of contributions" yourself." by that you probably mean I shouldn't just transfer money out in order to remove the excess right? I am going to file an Excess Removal Form.

macuser_22

Alumni - Champ

@tdo061803 wrote:

Hi Macuser_22

Thank you so much for your answer. Who would be the account trustee? I have the Roth IRA account at Ameriprise.

"You cannot preform a "return of contributions" yourself." by that you probably mean I shouldn't just transfer money out in order to remove the excess right? I am going to file an Excess Removal Form.

The trustee would be Ameriprise.

No. don't do it yourself or that will be a normal taxable distribution. I assume that this is either a 2019 or 2020 contribution that is still in the IRA and has not been removed yet.

You need to have the trustee do a "return of excess contribution" so that they will generate a 2020 1099-R with a code P in box 7 (if it was a 2019 contribution) or a code 8 (if it was a 2020 contribution). The trustee must calculate the earnings to return and enter those amounts on the 1099-R that you will not receive until Jan 2021.

[If a 2019 contribution returned in 2020 then you will need to either amend 2019 when you receive the 2020 1099-R next year OR when the excess plus earnings is returned to you you can enter it in you 2019 tax return as if you had already received the 2020 1099-R - there is a special way to di that, but you must know the total amount returned and the earnings. That would avoid having to amend 2019 when the 2020 1099-R is received in 2021.]

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**