How to fix erroneous ROTH contrib to inherited ROTH
What are the steps to fixing an erroneous, disallowed 2019 ROTH contribution made to an inherited ROTH IRA?
Dec 2019 inherited ROTH IRA account is established, although zero inherited ROTH is transferred into the account in 2019.
Dec 2019 client contributed $6,000 ROTH to that empty inherited ROTH account that was created Dec 2019.
Jan 2020 $50,000 inherited ROTH was deposited into the same inherited ROTH account which now holds the disallowed $6,000 ROTH contribution. $56,000 is now in the inherited ROTH.
Permalink Submitted by Alan - IRA critic on Tue, 2020-08-04 16:54
It would now be an owned Roth IRA if the sole beneficiary was a surviving spouse, however assuming that we have a non spouse beneficiary here the contribution must be treated as an excess regular Roth contribution and returned with allocated earnings as a corrective distribution by 10/15/2020. However, since the deadline for making a new 2019 contribution has passed, client will not be able to make a new 2019 Roth contribution to an owned Roth IRA. The inherited Roth custodian should have caught and rejected this contribution to the inherited IRA, but they obviously failed to do that. Client should be warned to resist any assertion by the inherited Roth custodian that this error will result in a total distribution of the inherited IRA.