Excess Contributions
What is an excess contribution?
The client has put more money into their IRA in one year than the IRS allows.
What is removed from the clients account if in current tax period?
Contribution amount AND earnings
What is a recharacterization?
A recharacterization allows a client to change an IRA contribution from one plan type to another.
Why might a excess contribution occur?
Your income is too high, you don't have enough earned income or you contributed more than the IRS limit.
What is taken out after the tax deadline?
The contribution is taken without earnings or losses and returned to you. (penalty is assessed)
Deadlines for Recharacterization
April 15th, October 15th if client qualifies for a tax filing extension.
Where can I find information about excess removals or recharacterizations that I can send out to the clients?
in Crave they are available in "Forms and Applications"
What is the penalty amount for removing an ineligible contribution after tax deadline?
6% excise tax
Reasons for a Recharacterizations (3)
Clients MAGI exceeds the limit, Client is ineligible to deduct the amount, Client realizes it was not in their best interest to contribute to that type
What will the client need to do if he requests the removal to be sent to his bank via ACH or sent to the AOR via check?
Funds need to be in settlement fund
What tax forms will a recharacterization generate?
1099r - Money leaving one IRA
5498 - Money coming into the other IRA
8606 - Reporting recharacterization
If it is after the tax deadline, what is the process for an excess removal?
Only excess contribution amount will be removed, no earnings calculation. 6% excise penalty for every year it's in account past 12/31.
What pocess(es) are available for a client to Recharacterize a contribution?
Crave, intellidox, physical form