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Level 2

Solved

IRA deduction

Forum|Forum|3 years ago
January 6, 2023
3 replies
46 views

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.

Not A Product Question

Best answer by dmertz

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.

Level 15

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

Level 15

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

Level 15

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.

dmertzAnswer

Level 15

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.

Level 15

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).

Level 15

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,