withdrawal of excess contribution from retirement plan
Taxpayer deposited $20,000 into New York State and Local Retirement System to purchase credits in 2013. The funds came from a direct deposit from taxpayer’s rollover IRA to the retirement plan. IRA custodian coded the withdrawal with a “G” for rollover, not taxable in 2013.
In 2015 taxpayer was informed that he had prior service credits that rendered the 2013 purchase unnecessary. NYSLRS returned his $20,000 plus interest of $1,000. NYSLRS coded the distribution with an “8” for return of excess contributions.
Taxpayer immediately deposited the $21,000 back into his rollover IRA as a rollover contribution.
My software is telling me $21,000 goes on line 7 of Form 1040 as “wages”, and there is no provision for a rollover.
Is it possible to rollover the excess contribution back into the IRA from whence it came with no taxable event?
Taxpayer says he was told he could do this.
Thank you,
Permalink Submitted by Alan - IRA critic on Mon, 2016-03-07 20:03
If the plan told the taxpayer they could roll this over, the plan needs to correct that 1099R to use a distribution code that allows rollovers such as 1 or 7. As long as the plan treats this as an excess contribution, the IRS will view it a not rollover eligible. Why did the plan treat this as excess instead of just adding more years of service? It is certainly not equitable to have a plan error result in a distribution of retirement funds from his IRA that he would not otherwise have distributed.