Income from excess Roth IRA contribution


D

David Schwartz

In January of this year, my wife and myself contributed $5000 each into our
Roth IRA account for 2006 (we are eligible for the $1000 catch up.) Now
after completing my taxes for 2006, it seems that we are, for the first
time, not eligible to contribute to a Roth because we are both participants
with an active retirement plan and our adjusted gross income is over the
limit (lucky us, I guess!) So, we withdrew the $10,000 contribution and
about $150 worth of income that the $10,000 generated in those 3 months.

My question is, in what manner do I report that income? As investment
income (short term capital gains, I guess) or as an Roth IRA withdrawal,
which, since I am 52, am not eligible to do yet.

My gut feeling is to report this as ordinary, short term capital gain
income, but since the contribution and withdrawal was done in 2007 for 2006,
none of this showed up on my 1099's. How should I report the income?
Specially, on what line of my 1040.

Thank you
 
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P

Phil Marti

David Schwartz said:
In January of this year, my wife and myself contributed $5000 each into
our Roth IRA account for 2006 (we are eligible for the $1000 catch up.)
Now after completing my taxes for 2006, it seems that we are, for the
first time, not eligible to contribute to a Roth because we are both
participants with an active retirement plan and our adjusted gross income
is over the limit (lucky us, I guess!) So, we withdrew the $10,000
contribution and about $150 worth of income that the $10,000 generated in
those 3 months.

My question is, in what manner do I report that income?
It goes on line 15 of the 1040. You will not get a 1099-R until 2008, and
it should be coded to indicate that the income is 2006 income.

For each of you who is under 59 1/2, there will be a 10% penalty on the
earnings.

Reference: IRS Publication 590.
 

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