Our son graduated from college in May, 2017 and didn't work the entire year, thus he received no W2 and didn't file taxes in 2017. Unfortunately, we gifted him 5500 and deposited it in a Roth IRA without thinking about the fact he hadn't earned any income that year. How do we correct that now? Do we go back and file for 2017 now and pay the penalty with that fileing? Do we need to remove the money from the Roth-IRA now as well, or can we apply it to what he will contribute this year? He will be filing this year and has earned more than the 5500 we contributed last year.
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If he has at least $5,500 earned income in 2018 then the excess can either be removed before April 15 as a "return of contribution" without any penalties in 2017 or 2018 OR just apply it as a 2018 contribution, also without any 2017 or 2018 penalty.
As long as it was not entered into TurboTax for a 2017 tax return, then there is nothing to do for 2017.
If he has at least $5,500 earned income in 2018 then the excess can either be removed before April 15 as a "return of contribution" without any penalties in 2017 or 2018 OR just apply it as a 2018 contribution, also without any 2017 or 2018 penalty.
As long as it was not entered into TurboTax for a 2017 tax return, then there is nothing to do for 2017.
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