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    TaxHelpNeeded's Avatar
    TaxHelpNeeded Posts: 29, Reputation: 1
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    #1

    Mar 20, 2012, 11:33 AM
    Roth IRA excess contribution
    Hi,
    On Saturday Mar 17th 2012, I initiated a transfer to contribute $5000 to my Roth IRA for 2011. I hadn't done my taxes, and the next day, I realized I was ineligble for a Roth contribution for the 2011 tax year. I tried to get the pending transfer cancelled on Monday March 19th, but Vanguard told me they couldn't cancel that. So today Mar 20th 2012, I asked them to remove that excess contribution. They said they will issue a form for 2012 (1099-R). They also mentioned two additional forms that I need to look into 8068 and 5329.

    I'm still confused, what I need to do for filing my taxes this year and maybe next year to deal with this excess contibution which lasted but one day, and will likely not generate any income(loss) (I deposited it to a money market fund)

    Questions
    a) Do I need to fill out any forms this year related to this excess contibution which I asked to get withdrawn a day later. Conribtuion made/withdrawn in 2012 for tax year 2011.

    b) If any income is generated, is that considered 2011 income or 2012. So basically do I need to report anything for this year, or is all next year.

    c) What are the forms that I need to file assuming some small gain

    2011 : 1099-R (yes/no)
    5329 (yes/no)
    8068 (yes/no)

    2012 : 1099-R (yes/no)
    5329 (yes/no)
    8068 (yes/no)

    I'not 59.5 or over, so I guess the "excess withdrawal" from the Roth IRA, means if any income was generated it would be getting a 10%penalty for which I need 5329. If there aren't any, do I still need to file the form?

    Also my understanding is that the 8086 form needs to be filed only if I was recharecterizing the Excess roth contribution to a traditional IRA. Is that correct?

    Thanks in advance for your help.
    ebaines's Avatar
    ebaines Posts: 12,132, Reputation: 1307
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    #2

    Mar 20, 2012, 01:30 PM
    First - what happened to the $5K? Did Vanguard refund it to you, or did you move it to a traditional IRA as a 2011 contribution instead?

    a) Nothing to submit for 2011 unless Vanguard sends out a 2011 1099-R. But as you noted I wouldn't expect that - if anything they will send a 2012 1099-R in early 2013.

    b) If there are any earnings that were made during that one day then that amount is taxable in 2012.

    c) Forms for filing with your 2011 1040:
    1099-R - No. You don't file a 1099-R, Vanguard does.
    5329 - no, assuming you don't receive a 2011 1099-R.
    8068 - yes, but only if you make a nondeductible contribution to your traditional IRA (not Roth IRA) for tax tear 2011.

    For 2012: it all depends on what the 1099-R says which you will receive in January 2013. If it indicates that the distribution is taxable or gives a distribution code that indicates penalty is due you may have to file form 5329 to dispute that.

    Form 8086 would be filed ONLY if you made contributions to a traditonal IRA (such as if you recharacterized the money in question to a traditional IRA).

    Hope this helps.
    TaxHelpNeeded's Avatar
    TaxHelpNeeded Posts: 29, Reputation: 1
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    #3

    Mar 20, 2012, 01:42 PM
    Thanks for your response.
    >> what happened to the $5K? Did Vanguard refund it to you, or did you move it to a traditional IRA as a 2011 contribution instead?

    I've asked them to remove it from the Roth and move it to me my regualr taxable account.

    Given that, is it correct that I won't have to file form 8086?

    So then I have
    a) Nothing to submit with 2011 return
    b) If earnings are taxable, then file 5329 to compute the penalty. This will be for tax year 2012.
    c) Same as b)
    ebaines's Avatar
    ebaines Posts: 12,132, Reputation: 1307
    Expert
     
    #4

    Mar 20, 2012, 02:09 PM
    You have it right. No need to file form 8086 since you didn't contribute to a traditional IRA.
    TaxHelpNeeded's Avatar
    TaxHelpNeeded Posts: 29, Reputation: 1
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    #5

    Mar 20, 2012, 02:37 PM
    Thanks a lot for your help!
    newacct's Avatar
    newacct Posts: 321, Reputation: 21
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    #6

    Mar 21, 2012, 07:50 PM
    Although, since you wanted to contribute to a Roth IRA but couldn't, you probably want to consider contributing to a non-deductible traditional IRA and then immediately convert it to a Roth IRA; this is identical to a direct Roth IRA contribution (assuming you don't have previous deductible IRAs).

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