Dear Tax Talk,
I have a dandy of a question regarding penalties and options. With the help of our broker in June 2013, $6,000 was transferred out of my wife's (age 58) Roth IRA and transferred not to her Roth at another brokerage, but to my (age 59 1/2) Roth IRA.
I'm thinking I should expect taxes and penalty for my wife's transfer out. I am retired and had no earned income and did not qualify for a contribution. My only income was pension and dividend income. What taxes and penalties should I expect to pay, and do I have an option of reversing or correcting erroneous transfers? Do I have to pay for a broker's mistake with a Roth IRA transfer?
Lesson learned: Pay close attention to your brokerage statements!
I agree with you on paying close attention to your brokerage statements. This is considered an excess contribution to your Roth IRA account. It is a good thing that you saw the error because you have time to get this fixed, and that will save you the 6% excise tax that applies to excess contributions. You have until on or before the due date of your 2013 Form 1040 (including extensions) to get this corrected.
You need to contact the broker as it is not just the $6,000 that was incorrectly deposited into your account that needs to be removed. The earnings on the $6,000 will need to come out of your account also and will be treated as earned and received in 2013. I would get started on this right away and confirm that everything is done correctly and timely by the broker.
Good luck and thanks for your question.
Ask the adviser
To ask a question on Tax Talk, go to the "Ask the Experts" page and select "Taxes" as the topic. Read more Tax Talk columns.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.