year contribution deemed made?
taxpayer funds ira april 1, 2008. letter to ira custodian silent re for which year contribution is intended (08 vs 07) taxpayer intended 07 contribution. ira contribution not deductible due to active participant rules. taxpayer reports april 1, 2008 ira contribution on 2007 form 8606 which is filed with the taxpayer’s 2007 us tax return. taxpayer later finds out that ira custodian reports april 1, 2008 contribution to irs on form 5498 as 2008 contribution. custodian unwilling to admit error on their part and says it cannot change form 5498 filed with the irs. is taxpayer “stuck” with erroneous reporting to irs by ira custodian or can it consider the april 1, 2008 ira contribution as made for 2007?
Permalink Submitted by Alan Spross on Sat, 2009-10-10 01:13
Short answer is Yes, he is stuck, but still may have options.
In this case, the taxpayer only had two weeks to have the contribution changed to 2007, because 4/15/08 was the last possible date to make a 2007 IRA contribution. Therefore, the taxpayer has lost the use of 2007 for IRA contribution purposes.
However, there are still options for changing the contribution, but changing the year is not one of them. Since the contribution was assigned to 2008, the usual IRA custodian default option for contributions received between 1/1 and 4/15 that do NOT specify a contribution year, the taxpayer has until the extended due date of 10/15/2009 to recharacterize or remove a 2008 contribution.
For example, the current status is either a non deductible 2008 TIRA contribution or a deductible TIRA contribution if income permits the deduction. If this is not acceptable, taxpayer can request a return of contribution plus any earnings, and the earnings would be taxable on the 2008 return plus an early distribution penalty of 10% of the earnings if under 59.5. Another option is to recharacterize the contribution as a Roth IRA contribution IF the taxpayer’s income is not too high for a Roth contribution.
Even the above options assume that taxpayer either filed a 2008 return on time or timely filed an extension to 10/15/09. Either of these allows use of the extended due date for the above changes. If neither of these were done, it is too late to make any changes at all, and the 8606 would have to be filed to document the non deductible TIRA contribution.
Permalink Submitted by mk foss on Sat, 2009-10-10 22:21
I am very confused by this. The Forms 5498 that I get and others that I’ve seen just show the contributions received by the custodian in 2008 without further identification.
I also know that when I’ve made IRA or SEP deposits at Charles Schwab they always tell me that they do not track the year the contribution was made for.
Permalink Submitted by Alan Spross on Sun, 2009-10-11 01:04
Mary Kay,
The 5498 Box 1 shows contributions made for the prior year, ie the year the 5498 is for. They come out at two different times:
1) End of January reporting year end FMV and contributions made from 1/1 to 12/31
2) End of May to report updated contribution total due to contributions made from 1/1 to 4/15 of the following year.
If taxpayer makes a 2009 contribution in early 2009, that contribution should not be shown on the 5498 until the following January when the 2009 5498 is issued.
Unfortuneately, all this would not help the taxpayer described in the original post. His only clue with respect to the 5498 would be that he did not get one by the end of May, 2008 showing a contribution for 2007. By that time it is already too late to contact the IRA custodian to change it. Anyone making a contribution between 1/1 and 4/15 of any year should carefully check for a confirming statement showing the year the contribution was assigned to, or should check their account on line for receipt of contribution and assignment to the correct year.
I believe that most IRA custodians use a default assignment of the current calendar year for unspecified contributions. I have always entered the year of contribution right on the check and in addition entered “Prior year contribution” if that applied.
To make matters worse, there is very little out there in the way of written explanation regarding the options to changing the year of a contribution if it is originally assigned to a year different than intended. And when it is assigned to a later year, the deadline for correction of 4/15 often expires.