Is a Roth IRA CD treated the same as a Roth IRA when filing income tax return?

[marisacortinas]

In February 2019 (for 2018) I contributed $5,300 to a Roth IRA CD. I had been told by financial planner that when filing taxes, a Roth IRA CD would be treated the same as a Roth IRA. Is that a correct statement?  If so, I have the following issue....

I entered the contribution amount of $5,300 into TurboTax under contributions toward Roth IRA.  Turns out that my MAGI is too high. Only $2,340 is allowed; $2,960 is excess.  Is there any going back on this Roth IRA CD?  Unfortunately, there is also a 2019 contribution to the same Roth IRA CD for $6,900!

[DanaB · Accepted solution]

Yes, a Roth IRA CD is treated the same as a Roth IRA and there is a contribution limit for the Roth depending on your Filing Status and MAGI. 

Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. You can avoid the penalty on an excess contribution by withdrawing the excess contribution plus earnings. Make sure that you tell the bank that you want to withdraw excess contributions. 

From the IRS Publication 590-A: "For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made".

[marisacortinas]

Thank you for the response.  Since this is a Roth IRA CD I locked into for 18 months, will I be allowed to withdraw the excess now?

[DanaB]

You will have to contact your bank about if they allow you to withdraw the excess.

[marisacortinas]

Thank you again for your help.  I ran down to my credit union and they took care of the problem with no hesitation.

[fanfare]

you'll have to deternine whether you will have the same MAGI problem with your 2019 contribution.
For this reason it's wise to wait until after Dec 31 to make Roth, SEP or traditional IRA contributions.

[fanfare]

PS, open a self=directed brokerage IRA account for your Roth . you'll never get anywhere with a CD, and find another financial planner