Traditional IRA

Archive for the ‘Traditional IRA Contributions’ Category

Can an Excess IRA Contribution in one year be used to fund a future year’s contribution?

In another word, can Excess IRA Contribution be an IRA rollover as the next year’s IRA contribution? 

To the extent that excess IRA contributions are not removed, the individual can treat any remaining excess IRA contributions from a prior year as an IRA contribution for a later year. 

This will avoid having to make an IRA withdrawal, but will not avoid the 6% IRA penalty on excess IRA contributions remaining at the end of the year. 

If the Excess IRA Contribution is a result of an excess employer SEP IRA contribution, the employer is subject to a 10% excise tax as a result of a nondeductible (i.e., excess) SEP IRA contribution. 

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How is the IRA distribution of an Excess IRA Contribution reported?

The custodian will issue Form 1099-R for the year of IRA distribution of the Excess IRA Contribution in January of the following year. 

The IRA distribution code in Box 7 will be either “8″, “D” or “P”, depending on the year of IRA contribution. 

The instructions to IRS Form 8606 explain how a taxpayer should report the return of excess IRA contributions on his or her tax return. 

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What are the state tax implications of an Excess IRA Contribution?

State tax rules vary. It is best to call your state directly or consult a tax advisor.