A:

Don't feel too badly. We all make mistakes. The good news is that you may have some time to make the proper corrections.

The IRS provides you with an automatic six-month extension to correct excess contributions if you file your federal tax return by the April 15 deadline. This means your spouse may have until the middle of October to correct the excess contribution. Should the excess contribution remain in the Roth IRA after this deadline, your spouse will owe the IRS a 6% penalty on the excess contribution. This 6% is assessed for every year the excess remains in the IRA.

To correct a Roth IRA excess contribution, the excess contribution must be removed from the Roth IRA along with any earnings (or minus any loss). The IRA custodian may require your spouse to complete a distribution request form (or return of excess request). Some custodians will assist you with calculating any earnings on the excess contribution. If this is the only contribution made to the account, calculating the earnings will be easy. In general, the earnings will be determined by subtracting (from the current balance) any fees and the amount that was contributed.

The excess correction will be reported to your spouse and the IRS on Form 1099-R. If the excess contribution is being corrected in the current year, the 1099-R will be mailed to your spouse the following January. Not to worry. The IRS does not require you to attach Form 1099-R to your tax return unless you had federal taxes withheld from the distribution(s) being reported. Any earnings will be taxable in the current year (the year for which the contribution was made), which means that if you already filed your federal tax return, you may need to file an amended return to include any earnings. This will be denoted by a "P" in

box #7

of Form 1099-R.

You may want to consult with your tax professional to ensure all the requirements are met.

This question was answered by Denise Appleby.
(Contact Denise)

RELATED FAQS
  1. Can you buy penny stocks in an IRA?

    It is possible to trade penny stocks through an individual retirement accounts, or IRA. However, penny stocks are generally ... Read Full Answer >>
  2. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
  3. Can my IRA be used for college tuition?

    You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can ... Read Full Answer >>
  4. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  5. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>
  6. What are the best ways to use your 401(k) without a penalty?

    The best way to use your 401(k) retirement savings account is to take normal distributions after you reach retirement age. ... Read Full Answer >>
Related Articles
  1. Professionals

    Your 401(k): How to Handle Market Volatility

    An in-depth look at how manage to 401(k) assets during times of market volatility.
  2. Professionals

    How to Build a Financial Plan for Gen X, Y Clients

    Retirement is creeping closer for clients in their 30s and 40s. It's a great segment for financial advisors to tap to build long-term client relationships.
  3. Professionals

    Don't Let Your Portfolio Be Trump'd by Illiquidity

    A look at Donald Trump's statement of finances and the biggest lesson every investor can learn.
  4. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  5. Retirement

    Maxing Out Your 401(k) Is Profitable: Here's Why

    It's shocking, but most American workers (73%) have no 401(k) retirement funds. Start saving now to anchor your retirement.
  6. Professionals

    Top Questions to Ask When Choosing a Robo-Advisor

    Think a robo-advisor might be the right choice for you? Be sure to ask these questions first.
  7. Professionals

    Top Retirement Hack? Start with a Lifestyle Change

    Instead of going through the usual retirement planning steps, some people are focusing on fostering a lower cost lifestyle from the start.
  8. Insurance

    Picking the Best Longevity Insurance

    What you need to know before buying a "reverse life" policy.
  9. Retirement

    Best Ways to Save For Retirement Without an IRA or 401(k)

    Learn the most common types of savings vehicles used to accumulate money for retirement outside employer-sponsored 401(k)s or IRA accounts.
  10. Retirement

    Inherited IRA and 401(k) Rules: Don't Run Afoul

    What you need to know when it comes to the complex rules for inherited IRAs and 401(k)s.
RELATED TERMS
  1. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  2. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  3. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  4. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  5. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  6. Elder Care

    Elder care, sometimes called elderly care, refers to services ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!