Remove Excess

Remove the excess contribution and pay a 6% penalty on the excess for 2013. When excesses are removed after the tax filing deadline, only the excess contribution is removed, the NIA is left in the IRA. Any fees or penalties

IRA Type Removed

Same Year Made Removed Year

Following Year Made Used with the Following Codes When Applicable

Traditional IRA Code 8 Code P Code 1

(if under 59¹/²) Code 4

(if deceased)

Roth IRA Code 8 Code P Code J

associated with the excess removal must be taken from the balance, not the amount of the excess distribution. If the contribution was made in 2012, and the excess was removed between October 16 and December 31, 2012, the 6% penalty for 2012 is reported on the 2012 Form 5329, which may also require the IRA Holder to amend his or her 2012 Form 1040 tax return. If the excess were not removed before the December 31 deadline, an addi-tional 6% penalty would apply for each year that the excess remains in the IRA at the end of the tax year. If it is NOT corrected by December 31, 2013, another 6% penalty is due.

As long as the original contribution was no more than the maximum allowed for the year and no deduction was taken for it, the distribution will be tax-free. If however the amount of the original contribution was, for instance,

$8,000, the excess amount would be taxable when removed. It is up to the IRA Holder to report it on his or her personal tax return.

Remove Excess Contribution and Code for Proper Reporting (after the tax filing deadline) 1. Report gross distributions (excess contribution, only) in Box 1.

2. In Lotta’s case, the excess does not exceed the maximum annual contribution limit for 2012, so Box 2a is left blank. If the excess had exceeded the maximum annual contribution limit for 2012, the excess amount in Box 1 would also be reported in Box 2a. Since the distribution is from a Traditional IRA and Lotta is under age 59¹/², the reason code for the distribution will be a Code 1.

JM Consultants Excesses and Recharacterizations

IRA Type Removed Year Following Year Made

Traditional IRA Code 1 if under 59¹/²

Roth IRA Code J Ð For excesses removed by IRA Holders both younger and older than 59¹/² (Code Q or T is also possible)

worksheet may be used.

Sample Excess Contribution NIA Worksheet

1. Amount of excess contribution to be removed. 1._____________________

2. Ending balance just prior to removing excess contribution (add to actual ending balance any subtractions including distributions, transfers, and recharacterizations that were removed from the account after the excess

contribution was made but prior to the excess being removed). 2._____________________

3. Starting balance immediately before excess contribution was made (add to actual starting balance any addition including contributions, transfers,

rollovers, or recharacterizations made to account from the time the excess contribution was made until the present, including the excess

contribution, itself). 3.______________________

4. Subtract sum on line 3 from sum on line 2. 4.______________________

5. Divide line 4 by line 3.

(Round to at least three places) 5.______________________

6. Multiply line 1 by line 5.

(This is the NIA) 6.______________________

7. Add line 6 to line 1

(Excess contribution plus its NIA to be removed) 7.______________________

Excess Accumulations Versus an Excess Contribution

When an IRA Holder does not take a scheduled RMD by the applicable deadline, this creates an excess accumu-lation, NOT an excess contribution. Excess accumulations are subject to a 50 percent penalty, NOT 6 percent.

However, it is possible to apply for a waiver of this penalty if there is a good reason why the IRA Holder missed the deadline. In order to be eligible for a waiver of the excess accumulation penalty, the IRA Holder should remove the amount that should have been distributed and submit a request for the waiver to the IRS. However, if an IRA Holder is not seeking a waiver of the penalty, according to at least one IRS spokesperson, it is not nec-essary to remove the amount representing the excess accumulation if the IRA Holder pays the 50 percent penal-ty. The IRA Holder should check with his or her legal and tax advisor when determining this course of action.

Ineligible Rollover Amounts Treated Like Regular IRA Contribution

If assets that are ineligible to be rolled over to an IRA are rolled over in error, they are treated like regular tributions for correction purposes and may be removed from the IRA using excess rules applicable to regular con-tributions.

The amount in excess of a regular contribution must be removed as an excess contribution.

Some examples of amounts that might be rolled over in error include:

• Rollovers that were distributed more than 60 days before being rolled over and which are not eligible for an automatic waiver.

• Any part of a series of substantially equal periodic payments from either a qualified plan or another IRA.

• A distribution that is deemed to satisfy the RMD requirements.

• A second distribution from an IRA that has rolled over a prior distribution within a 12-month period.

• Designated Roth IRA assets to a Traditional IRA.

• Dividends from an ESOP plan.

• A qualified retirement plan loan that was deemed distributed.

• The cost of life insurance.

• QRP Hardship distribution from a qualified plan.

• Corrective distributions of excess contributions.

• Traditional IRA assets transferred or rolled over to a SIMPLE that is not timely recharacterized.

Correcting Ineligible Rollovers

1 Determine ineligible rollover amount

2 Change/Amend Form 5498, Box 2, showing correct rollover amount (Could be zero)

3 Change/Amend Form 5498 showing ineligible amount as Traditional IRA Contribution, Box 1 or Roth IRA Contribution, Box 10.

4 Correct ineligible rollover as excess if applicable(Corrected like any other excess contribution.) NOTE 1: By treating the ineligible rollover as a regular contribution, it may be left in the IRA and apportioned year by year as an annual contribution until the total value of the ineligible amount is used up. This will require the IRA Holder to pay an annual 6% penalty on the amount that represents an excess, depending on the size of the ineligible rollover amount. Also, because the ineligible rollover is treated like a regular contribution, it is pos-sible to remove it like a regular contribution excess.

NOTE 2: We are not yet sure how this will be handled for 2015 ineligible rollovers if they are the second rollover