Excess Roth Contribution


C

Charlie K

I calculate I'm going to have about $250 in an excess
contribution for 2004. Vanguard forms say they'll calculate
the earnings and send the amount to me along with my excess
contribution, but the form also says if I want to apply the
excess to my 2005 contribution, to not send in the form but
just report the change on the tax return. Don't I have to
remove the earnings even if I apply it to 2005
contributions? Or can I leave the earnings in and just pay a
penalty on the excess contributiion for one year, 2004. I
realise the amount is small, but I want to know how to do it
correctly.
 
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A

Arthur L. Rubin

Charlie said:
I calculate I'm going to have about $250 in an excess
contribution for 2004. Vanguard forms say they'll calculate
the earnings and send the amount to me along with my excess
contribution, but the form also says if I want to apply the
excess to my 2005 contribution, to not send in the form but
just report the change on the tax return. Don't I have to
remove the earnings even if I apply it to 2005
contributions? Or can I leave the earnings in and just pay a
penalty on the excess contributiion for one year, 2004. I
realise the amount is small, but I want to know how to do it
correctly.
You have to look closely at what they sent you, but it seems
likely that they would "remove" the excess contribution and
earnings (the earnings are probably taxable), and include
them as part of your 2005 contributions. Keep that in mind
when you make your 2005 contribution, or you will have an
excess contribution again.
 
P

Phil Marti

Charlie K said:
I calculate I'm going to have about $250 in an excess
contribution for 2004. Vanguard forms say they'll calculate
the earnings and send the amount to me along with my excess
contribution, but the form also says if I want to apply the
excess to my 2005 contribution, to not send in the form but
just report the change on the tax return. Don't I have to
remove the earnings even if I apply it to 2005
contributions? Or can I leave the earnings in and just pay a
penalty on the excess contributiion for one year, 2004. I
realise the amount is small, but I want to know how to do it
correctly.
You can just leave it in, pay the 6% penalty on the excess, and then reduce
your 2005 contribution correspondingly.

Phil Marti
Clarksburg, MD
 
H

Harlan Lunsford

You can just leave it in, pay the 6% penalty on the excess,
and then reduce your 2005 contribution correspondingly.
6% of 250 may not be so much (to some people) but why pay it
at all, when you can just inform Vanguard to make sure that
that 250 is applied to 2005 and not to 2004? Simple
request, and they can so note on their records.

15$, that's what it's worth. Heck, I even hand carry
personal property tax returns by the local office to save 7
37 cent stamps, plus I bring back the Kraft clasp envelope
back with me to use again! As I told the clerk this morning,
"see you same time next year."

Merry Christmas, Y'all
Harlan Lunsford
 
P

Phil Marti

Harlan Lunsford said:
6% of 250 may not be so much (to some people) but why pay it
at all, when you can just inform Vanguard to make sure that
that 250 is applied to 2005 and not to 2004? Simple
request, and they can so note on their records.
Because you can't make 2005 contributions until 1/1/2005.

If OP waits until January to fix the problem, your
suggestion makes sense, unless the fees he's going to be
charged are more than the penalty.

Phil Marti
Clarksburg, MD
 
P

Phoebe Roberts, EA

Harlan said:
6% of 250 may not be so much (to some people) but why pay it
at all, when you can just inform Vanguard to make sure that
that 250 is applied to 2005 and not to 2004?
That only works if the excess contribution was made in 2005
for 2004. You can't contribute for Year X in Year X-1.
I even hand carry
personal property tax returns by the local office to save 7
37 cent stamps, plus I bring back the Kraft clasp envelope
back with me to use again!
We have some plastic sleeves (which we use to carry
everything hither and thither) for exactly that reason. If
it can't be e-filed, and the taxing authority is local to
us, we hand-deliver and get stamped copies. The savings in
stamps is just a fringe benefit.

Phoebe :)
 
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C

Charlie K

"6% of 250 may not be so much (to some people) but why pay it
at all, when you can just inform Vanguard to make sure that
that 250 is applied to 2005 and not to 2004? Simple
request, and they can so note on their records."

That would be considered a withdrawl of a 2004 contribution and a
separate contribution in 2005. You can't change the fact it was made
in 2004.
 
H

Harlan Lunsford

Harlan Lunsford wrote:
That only works if the excess contribution was made in 2005
for 2004. You can't contribute for Year X in Year X-1.
Just as Phil pointed out, so the correct thing to do is to
get Vanguard to send a check for excess.
We have some plastic sleeves (which we use to carry
everything hither and thither) for exactly that reason. If
it can't be e-filed, and the taxing authority is local to
us, we hand-deliver and get stamped copies. The savings in
stamps is just a fringe benefit.
I don't ask for receipts, since locally we know each other.
Last year I told another local county authority I had hand
delivered said returns, and she said yes, she had them, and
if I said I had done so before 12/31 , then no problem.

savings are NOT just fring benefits. "Look to the pennies,
and the dollars will take care of themselves." Wish I
remembered who said that. Benjamin Franklin?

Happy New ChEAr$,
Harlan Lunsford
 
H

Harlan Lunsford

Charlie said:
"6% of 250 may not be so much (to some people) but why pay it
at all, when you can just inform Vanguard to make sure that
that 250 is applied to 2005 and not to 2004? Simple
request, and they can so note on their records."

That would be considered a withdrawl of a 2004 contribution and a
separate contribution in 2005. You can't change the fact it was made
in 2004.
Check out page 58 of publication 590 which outlines the
procedure. In short, as long as the excess is withdrawn and
therefore the situation is cured, no problem. And Vanguard
would be glad to hold the extra 250 if they know they get to
keep it for 2005.

Happy New ChEAr$,
Harlan Lunsford, EA n LA
 
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D

D. Stussy

Harlan Lunsford wrote:
That only works if the excess contribution was made in 2005
for 2004. You can't contribute for Year X in Year X-1.
No. It can still work if the excess was contributed in 2004
- as long as the corrective action is in 2005 before the
filing date of the 2004 return. (don't forget about any
earnings.)
We have some plastic sleeves (which we use to carry
everything hither and thither) for exactly that reason. If
it can't be e-filed, and the taxing authority is local to
us, we hand-deliver and get stamped copies. The savings in
stamps is just a fringe benefit.
Always get a stamped copy (or the taxing authority's
receipt).
 

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