IRA deduction

[leedsalem]

I contributed $7,000 to a simple IRA in tax year 2022 planning to take the deduction. However, unbeknownst to me, I was enrolled in my company's 401K plan. I'm therefore ineligible to take the IRA deduction.

Can I take the $7,000 back out of the IRA without incurring a penalty? I am 68 years old.

[Anonymous_]

@dmertz can most likely answer your question so check back later.

[fanfare]

whether you can deduct it in your situation depends on your income.

[fanfare]

you can have the custodian return your funds to you by Tax Day, as long as you did not take a deduction on your tax return.

[dmertz · Accepted solution]

You can request the the IRA custodian make an explicit return of the $7,000 contribution (not a regular distribution).  The IRA custodian will make a distribution adjusted for investment gain or loss, accomplishing the return of the $7,000 contribution.  The distribution will be reported on a code-P 2023 Form 1099-R that must be reported on your 2022 tax return if there are gains attributable to the $7,000 being returned.  Be sure to decline any tax withholding on the return of contribution.

[AmeliesUncle]

The phrase you want to use is for them to "return the excess contribution" of $7000 (which basically un-does things, except for the earnings).  

[fanfare]

@AmeliesUncle 

 Except it is not an excess contribution.

you can have the custodian return your current year funds (plus any earnings) to you by Tax Day, 

[leedsalem]

Thanks for your help dmertz! The IRA is with Merrill Lynch. I’ll call them Monday. There are no earnings or losses associated with the $7K as I just deposited it before year-end and haven’t invested it. I really appreciate everyone’s feedback.