I recently and accidentally established a Roth IRA for my spouse instead of myself and contributed additional monies. What should I do?

By Denise Appleby AAA
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)

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