Excess 2018 Roth IRA Contribution
Odd Question?
I have a client who needs to remove his excess 2018 Roth IRA contribution of $5,500 due to MAGI. The $5,500 has grown to $9,000 since deposit was made in February 2018. My understanding of excess IRA deposits is; if 2018 contribution is removed then contribution and profits must be removed before April 15th and pay taxes on profits(NIA) or assume a 6% excise penalty only on contribution and earnings can stay in account. Seems in this case the client should purposely remove after April 15th and take 6% hit on $5,500 then remove contribution and allow earnings to stay in account. What am I missing?? I realize the profit in this case is abnormal but feeling the 6% excise tax not always so bad when good profits were made.
Permalink Submitted by Alan - IRA critic on Tue, 2019-04-09 02:17
Are you sure the gains on the contribution were calculated corrctly? Those gains are over 6 times the average market gains over this period of time. If so, you are correct that either a flat distribution of 5500 or applying the 5500 as a 2019 Roth contribution (if eligible) will avoid the distribution of 3500 of taxable gains plus penalty on the gains, which would cost more than the 330 excise tax for 2018.