Unauthorized IRA contribution

Forum|Forum|1 month ago
July 24, 2026
10 replies
111 views

Due to an error by our brokerage company, a contribution was made to my wife’s IRA account without her consent and knowledge, which they claim was a monthly recurring contribution. She is sixty nine and a half years of age and has no earned income except for my pension. The amount, in excess of $5,000, was withdrawn from our checking account. It has now been received in her IRA account. My question is...at tax time, how will the IRA treat this contribution? Will it be considered as a contribution, even though my wife has no earned income? .

PipiRAuthor

Level 5

P.S. The brokerage firm has advised us that they would cut my wife a check for the amount, but we are afraid it would be considered a distribution and we would have t pay 10.9 percent our effective tax rate.I any event, what could the IRS have to say about this transaction?

NCperson

Level 15

if the contribution occured in 2026, then it can be withdrawn by April 15, 2027 without any tax on the contribution. You wouldn’t pay tax on money that as after-tax contribution to begin with.

if the contribution occured in a prior year, it’s more complicated.

what year did this contribution occur?

PipiRAuthor

Level 5

It occurred July 2026. I understood that one of the requirements for IRA contributions was that “earned compensation” was required. My wife does not have that. I wish to confirm that even without an actual W-2, she can still contribute to her IRA. At this time, we have a choice, leave the money in the IRA, or have them cut a check. I have advised my wife that it would be more financially beneficial to leave the money in her IRA.

NCperson

Level 15

You don’t have a choice as you state neither you nor your wife has earned income.

Contributuons to a traditional IRA are limited to the lower of your earned income or the annual limit, which is $8,600. So you IRA contribution is limited to zero!

If you leave the money in the Trad IRA, Turbo Tax will warn you when you complete your tax return that it is not permitted. The IRS should pick up the error as well and sent letters, etc.

best to have the firm cut a check back to you. There are no tax implications and avoids the IRS headache going forward.

VolvoGirl

Level 15

You might be able to make a spousal contribution. I’m not sure how that works.

NCperson

Level 15

agreed, but there needs to be earned income somewhere. Spouse can make an IRA contribution with no earned income as long as OP’s earned income meets the earned income requirements.

OP indicates there is 0nly pensions (and presumably SS benefits) among the two of them.

PipiRAuthor

Level 5

NCperson, yes, you correct. I am 75 years of age and long retired. My wife is 69 ½ and neither one of us have “earned income,” only my pension and social security. One last question, please….If we do take the check, would it not be considered a “distribution” and taxed as such? I checked her IRA account today, and the money is now showing up as a total in her IRA account balance, which would mean that any money taken out might be considered a distribution as the term implies..

NCperson

Level 15

no - not a “distriibution” it’s a return of an excess contribution. You weren’t eligible to make the contribution in the first place.

p.s. even if it were an eligible contribution, after -tax contributions are not taxable upon distribution in any event. You can always an after tax contribution today and make a distritution tomorrow with no tax implications. you don’t pay tax twice on the same dollar.

fanfare

Level 15

For your situation find and fill out the custodian “return of excess and earnings” form.

You will get the money back plus/minus any earnings. You will get a 1099-R for your 2026 tax return.

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before tax filing date including extension: positive earnings allocable to the excess are included in income on 1040 Line 4b for the year of the contribution. negative earnings are ignored; in any case, for purposes of basis, consider the original contribution amount as returned.