Excess Distribution - report income in current year or next year?


B

binciong

In October 2006 I made a Roth IRA contribution of $4k. By
the end of the year I realized that I was not eligible to
contribute to my Roth IRA (above the AGI limit) so earlier
this year I had to take a prior year excess distribution
which refunded me the $4k that I put in plus $1,300 of
earnings which I received in March.

The $4k contribution and refund should be a wash since a
Roth IRA is non-deductible so there's no issue there. The
question I have is regarding the $1,300 of earnings. It
seems to me however that I should be reporting the $1,300 of
cap gains/dividends for 2006 since that is when it was
earned but I have not received a 1099 for it and my broker
(Scottrade) told me that I would be receiving a 1099 for it
next year for 2007. If I report it now (for 2006) but get a
1099 for it next year, it will seem that I need to report
that same $1,300 for 2007 thus being double taxed. Maybe I
shouldn't include that income for 2006 and just report it
next year for 2007 so that it matches the 1099? That just
seems wrong though since it was earned in '06.

Any ideas on how I handle this. Maybe there's a form I will
need to complete next year to show that I already reported
that income in a prior year?
 
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P

Phil Marti

In October 2006 I made a Roth IRA contribution of $4k. By
the end of the year I realized that I was not eligible to
contribute to my Roth IRA (above the AGI limit) so earlier
this year I had to take a prior year excess distribution
which refunded me the $4k that I put in plus $1,300 of
earnings which I received in March.

The $4k contribution and refund should be a wash since a
Roth IRA is non-deductible so there's no issue there.
Correct.

The
question I have is regarding the $1,300 of earnings. It
seems to me however that I should be reporting the $1,300 of
cap gains/dividends for 2006 since that is when it was
earned but I have not received a 1099 for it and my broker
(Scottrade) told me that I would be receiving a 1099 for it
next year for 2007.
Correct on all fronts. It's 2006 income, but a 2007 1099
will be issued since the distribution was in 2007. However,
the coding on the 1099 will indicate that it's 2006 income.
Report it on line 15 of your 2006 1040 and include the 10%
penalty on the earnings (assuming you're under 59 1/2) on
line 60.
 
Last edited by a moderator:
H

Herb Smith

binci...@yahoo.com said:
In October 2006 I made a Roth IRA contribution of $4k. =A0By
the end of the year I realized that I was not eligible to
contribute to my Roth IRA (above the AGI limit) so earlier
this year I had to take a prior year excess distribution
which refunded me the $4k that I put in plus $1,300 of
earnings which I received in March.

The $4k contribution and refund should be a wash since a
Roth IRA is non-deductible so there's no issue there. =A0The
question I have is regarding the $1,300 of earnings. =A0It
seems to me however that I should be reporting the $1,300 of
cap gains/dividends for 2006 since that is when it was
earned but I have not received a 1099 for it and my broker
(Scottrade) told me that I would be receiving a 1099 for it
next year for 2007. =A0If I report it now (for 2006) but get a
1099 for it next year, it will seem that I need to report
that same $1,300 for 2007 thus being double taxed. =A0Maybe I
shouldn't include that income for 2006 and just report it
next year for 2007 so that it matches the 1099? =A0That just
seems wrong though since it was earned in '06.

Any ideas on how I handle this. =A0Maybe there's a form I will
need to complete next year to show that I already reported
that income in a prior year?
The earnings are reported as ORDINARY INCOME (not capital
gains or dividends) for the year in which the excess
contribution was made (2006), not the year refunded. You
will receive a 1099R next year, hopefully coded to show that
this was a taxable distribution for 2006. At that time, you
can ignore the 1099, as you will claim it on your 2006
return.
 
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B

binciong

Thank you very much Phil & Herb.

As a small token of my appreciation for you taking the time
to respond to my question, I'd like to make a small donation
to the charity of your choice.

Feel free to contact me directly or reply to this thread to
let me know if you have any particular cause that would like
to support.

Just my way of paying it forward.
 
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