Penalty for 2004 Roth IRA Contribution if Over AGI Limit?

[Guest rrowehl]

I broker of mine had a client contribute to a Roth IRA for 2004. It has been determined that they are over the AGI allowed limits. 1) what penalties may be associated?, 2) What should next steps be to reverse this contribution?

Any help would be greatly appreciated.

RR

[mbozek]

See IRS pub 590 P 57 at www.irs.gov.

[John G]

RR - it is best if the directly affected party posts the problem. I am not sure of the point in posting the problem of someone two steps removed. For example, did this person file their tax return yet? How much did they deposit? Was the non-qualification based upon married filing seperately? late K-1? You might advise you friend to post the problem directly.

Setting that issue aside.....The first step is to call the custodian and explain the problem. They have procedures for returning the funds. IF, you contributed the funds in early 2005, there is a small chance that you can get the amount reclassified as 2005 contributions. It sounds like they probably could not contribute in 2005 either... but it is an approach to consider.

Folks that have brokers are more likely to have tax preparers or accountants. Time to call the accountant and ask about the possible penalty. The IRS has been known to waive penalties if a the taxpayer was given eroneous advice or upon discovering the problem took timely steps to correct the problem.

[jevd]

I agree with all of above. Also, the excess or inelligible contribution may be corrected by removing by tax filing date including extensions with no approved extension required. Earnings must be withdrawn also.