|
|
Contributed To An IRA When I Wasn’t Eligible…………Now What ?
02-17-2018, 01:57 PM
|
#1
|
Thinks s/he gets paid by the post
Join Date: Jun 2013
Posts: 1,554
|
Contributed To An IRA When I Wasn’t Eligible…………Now What ?
On Dec. 27th 2016, I contributed $1,500.00 to an existing IRA @ Fidelity. It was a foolish mistake on my part, in that I wasn't aware that you aren’t allowed to contribute when you have no earned income
When I realized my mistake, I contacted Fidelity, & on Jan. 23rd 2017, I received a check for $1,515.90
I also have a large taxable brokerage account at Fidelity. The tax information for that account was finally available today, & just as I started my return, I remembered the IRA screw up, & decided I better check into that first. I spoke to a Fidelity representative earlier today & here's what I found.
I told him that I’ve used TurboTax deluxe since 2001 & that ever since the feature became available, I’ve always downloaded my tax info directly from Fidelity. Since a 1099-R showing the ‘IRA mistake’ is part of my tax info @ Fidelity, I figured when I downloaded that into my return, it would automatically make the necessary adjustments.
According to the representative, this isn't the case. He told me that unless I contact TurboTax directly, I'll be charged whatever my federal tax rate is, on the entire $1,515.90, not the ’Taxable Amount’ of $15.90 shown on the 1099-R
Even worse than that, if the $1,515.90 was somehow added as additional income, it might be enough to put me over the ACA limits & I'd really be screwed.
Fingers crossed & hoping there's a way out of this
__________________
"No beast so fierce but knows some touch of pity, but I know none, therefore am no beast"
Shown @ The End Of The Movie 'Runaway Train'
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
02-17-2018, 02:06 PM
|
#2
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,202
|
No worries, or at least I think not. I haven't done this specifically for an IRA contribution, but I think it will be handled like Roth recharacterizations.
What you did was a recharacterization. You got your $1500 back, plus what that $1500 you put in earned while it was in the IRA.
When you go through Turbo Tax, go into where they ask you about the EDIT: IRA contribution reported on the 1099-R. TT should ask you if you recharacterized any of that. Say yes, that you recharacterized $1500. TT will adjust as if you did not make the contribution.
I don't know exactly what happens with the $15.90. That should wind up somewhere as regular taxable income.
Give it a try and see if that works.
|
|
|
02-17-2018, 02:16 PM
|
#3
|
Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Coronado
Posts: 3,674
|
Quote:
Originally Posted by ownyourfuture
According to the representative, this isn't the case. He told me that unless I contact TurboTax directly, I'll be charged whatever my federal tax rate is, on the entire $1,515.90, not the ’Taxable Amount’ of $15.90 shown on the 1099-R
|
That's flat out wrong. If the 1099-R shows $15.50 in box 2a, then that amount will download properly into TurboTax and it will handle it correctly. You can easily verify this by reviewing the downloaded document in TTax and confirming that the numbers on the downloaded 1099-R match the paper/online version you got from Fidelity.
You can further confirm that TTax is putting the right numbers in the right places by looking at your 1040 before you file it. You should see $15.50 on line 15b.
|
|
|
02-17-2018, 02:52 PM
|
#4
|
Thinks s/he gets paid by the post
Join Date: Jun 2013
Posts: 1,554
|
I corrected this:
When I realized my mistake, I contacted Fidelity, & on Jan. 23rd 2018, I received a check for $1,515.90
To this:
When I realized my mistake, I contacted Fidelity, & on Jan. 23rd 2017, I received a check for $1,515.90
I'm hoping both of you caught that before I did. I actually got the check for $1,515.90 on January 3, 2017 not 2018
__________________
"No beast so fierce but knows some touch of pity, but I know none, therefore am no beast"
Shown @ The End Of The Movie 'Runaway Train'
|
|
|
02-17-2018, 02:53 PM
|
#5
|
Thinks s/he gets paid by the post
Join Date: Jul 2002
Posts: 1,581
|
I'm surprised folks trust the download into TurboTax. I tried it a few years ago from T Rowe Price, and I had to go in and make several adjustments to the point that I deleted all TRP data and started over by manual entry so I understood how each item was handled.
Double check everything.
I just had to make quite a few adjustment to my state return as TurboTax does not import all necessary items from Federal.
|
|
|
02-17-2018, 02:56 PM
|
#6
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,202
|
Quote:
Originally Posted by ownyourfuture
I corrected this:
When I realized my mistake, I contacted Fidelity, & on Jan. 23rd 2018, I received a check for $1,515.90
To this:
When I realized my mistake, I contacted Fidelity, & on Jan. 23rd 2017, I received a check for $1,515.90
I'm hoping both of you caught that before I did. I actually got the check for $1,515.90 on January 3, 2017 not 2018
|
It actually doesn't matter, you could've recharacterized that any time.
|
|
|
02-17-2018, 04:10 PM
|
#7
|
Thinks s/he gets paid by the post
Join Date: Jun 2013
Posts: 1,554
|
Quote:
Originally Posted by RunningBum
No worries, or at least I think not. I haven't done this specifically for an IRA contribution, but I think it will be handled like Roth recharacterizations.
What you did was a recharacterization. You got your $1500 back, plus what that $1500 you put in earned while it was in the IRA.
When you go through Turbo Tax, go into where they ask you about the Roth contribution reported on the 1099-R. TT should ask you if you recharacterized any of that. Say yes, that you recharacterized $1500. TT will adjust as if you did not make the contribution.
I don't know exactly what happens with the $15.90. That should wind up somewhere as regular taxable income.
Give it a try and see if that works.
|
Thanks for your help. I'm going to do the return tomorrow, I'll let you know how it turns out.
__________________
"No beast so fierce but knows some touch of pity, but I know none, therefore am no beast"
Shown @ The End Of The Movie 'Runaway Train'
|
|
|
02-17-2018, 04:14 PM
|
#8
|
Thinks s/he gets paid by the post
Join Date: Jun 2013
Posts: 1,554
|
Quote:
Originally Posted by cathy63
That's flat out wrong. If the 1099-R shows $15.50 in box 2a, then that amount will download properly into TurboTax and it will handle it correctly. You can easily verify this by reviewing the downloaded document in TTax and confirming that the numbers on the downloaded 1099-R match the paper/online version you got from Fidelity.
You can further confirm that TTax is putting the right numbers in the right places by looking at your 1040 before you file it. You should see $15.50 on line 15b.
|
It does show the correct amount of $15.90 in box 2a.
I'll do my taxes tomorrow & report how it works out at that time.
Thanks for your help!
__________________
"No beast so fierce but knows some touch of pity, but I know none, therefore am no beast"
Shown @ The End Of The Movie 'Runaway Train'
|
|
|
02-17-2018, 05:03 PM
|
#9
|
Thinks s/he gets paid by the post
Join Date: Aug 2011
Posts: 3,594
|
What is the box 7 code on the 1099-R and is the taxable amount not determined box checked?
BTW, I am not familiar with the language that TT uses in the software, but the IRS would NOT refer to this as a recharacterization. This is assuming that your box 7 code is '8' aka "Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2017".
-gauss
|
|
|
02-17-2018, 05:06 PM
|
#10
|
Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
|
Quote:
Originally Posted by RunningBum
No worries, or at least I think not. I haven't done this specifically for an IRA contribution, but I think it will be handled like Roth recharacterizations.
What you did was a recharacterization. You got your $1500 back, plus what that $1500 you put in earned while it was in the IRA.
When you go through Turbo Tax, go into where they ask you about the EDIT: IRA contribution reported on the 1099-R. TT should ask you if you recharacterized any of that. Say yes, that you recharacterized $1500. TT will adjust as if you did not make the contribution.
I don't know exactly what happens with the $15.90. That should wind up somewhere as regular taxable income.
Give it a try and see if that works.
|
This is a somewhat unconventional use of the term "recharacterization". Usually it means changing aTIRA contribution to a Roth or the reverse.
I'm more used to seeing it called removal of an excess contribution (along w/associated earnings). The earnings , I believe, end up as an IRA withdrawal on line 15a/b and they also get a 10% penalty from F5329 and line 59 of the 1040.
|
|
|
02-17-2018, 05:24 PM
|
#11
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,202
|
Looks like my mistake calling it a recharacterization. I'll back out and watch.
|
|
|
02-17-2018, 05:32 PM
|
#12
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2006
Location: Boise
Posts: 7,866
|
Quote:
Originally Posted by kaneohe
This is a somewhat unconventional use of the term "recharacterization". Usually it means changing aTIRA contribution to a Roth or the reverse.
I'm more used to seeing it called removal of an excess contribution (along w/associated earnings). The earnings , I believe, end up as an IRA withdrawal on line 15a/b and they also get a 10% penalty from F5329 and line 59 of the 1040.
|
+1. This is my understanding also. The 10% penalty assumes the OP is under 59.5, which s/he probably is.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
|
|
|
02-17-2018, 09:00 PM
|
#13
|
Thinks s/he gets paid by the post
Join Date: Jun 2013
Posts: 1,554
|
Update:
I said I was going to wait till tomorrow, but I started the return tonight & it ‘appears’ everything worked out. cathy63 pointed out that I should see $15.90 on line 15b, & It shows $16.00 (rounded up)
As far as I know, I never had to go through/do any recharacterizations as mentioned by RunningBum ?
The return came out as I had expected, actually a little better.
But I have a new problem.
At one point during the return, I was asked about the cost basis of something that happened on July 20th 2017. It was related to my investment in Kinder Morgan (KMI) This is a pipeline company that changed from an MLP, to a conventional stock approximately 3 years ago. I never sold any shares, but for some reason last July 20th, I received a liquidation payout of $13.30
Since all my other tax info downloaded correctly, & apparently nothing showed up, I figured it was one of those situations where you just have to put in a number & hope for the best. So I put in something like $24.27
But later I went back to Fidelity & downloaded a PDF of all the tax information, & it shows a cost basis of zero.
Now I've been trying to go back & change it to zero in TT, but I haven't been able to. If someone could point out how to get to that point/form, it would be much appreciated.
__________________
"No beast so fierce but knows some touch of pity, but I know none, therefore am no beast"
Shown @ The End Of The Movie 'Runaway Train'
|
|
|
02-18-2018, 05:35 AM
|
#14
|
Full time employment: Posting here.
Join Date: Aug 2015
Posts: 987
|
UMM, you do know that you CAN contribute to an IRA without any earned income (up to a limit for tax deferred and anither limit for non tax deferred) . Only a Roth IRA (or 401k) requires earned income.
|
|
|
02-18-2018, 05:52 AM
|
#15
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,202
|
Quote:
Originally Posted by ownyourfuture
Update:
I said I was going to wait till tomorrow, but I started the return tonight & it ‘appears’ everything worked out. cathy63 pointed out that I should see $15.90 on line 15b, & It shows $16.00 (rounded up)
As far as I know, I never had to go through/do any recharacterizations as mentioned by RunningBum ?
|
As others pointed out and I acknowledged, I was wrong about that, so disregard what I posted.
|
|
|
02-18-2018, 06:12 AM
|
#16
|
Thinks s/he gets paid by the post
Join Date: Aug 2011
Posts: 3,594
|
Quote:
Originally Posted by Perryinva
UMM, you do know that you CAN contribute to an IRA without any earned income (up to a limit for tax deferred and anither limit for non tax deferred) . Only a Roth IRA (or 401k) requires earned income.
|
This doesn't sound familiar. Do you have a source for this?
I am planning on HSA contributions only after DW REs this year due to a lack of earned income. There is no Earned Income requirement for HSA contributions -- only coverage by a HDHP.
Here is an excerpt from Pub 590-A regarding this.
Quote:
General Limit
For 2016, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts:
$5,500 ($6,500 if you are age 50 or older), or
Your taxable compensation (defined earlier) for the year.
Note.
This limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions).
This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. (See Nondeductible Contributions , later.) Qualified reservist repayments do not affect this limit.
|
-gauss
|
|
|
02-18-2018, 07:51 AM
|
#17
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
|
+1 I think Perryinva is mistaken.
Quote:
For 2015, 2016, 2017 and 2018, your total contributions to all of your traditional and Roth IRAs cannot be more than:
- $5,500 ($6,500 if you’re age 50 or older), or
- your taxable compensation for the year, if your compensation was less than this dollar limit.
The IRA contribution limit does not apply to:
- Rollover contributions
- Qualified reservist repayments
|
(emphasis added)
The only exception that I can think of is spousal contributions, but those still require earned income in excess of total contributions by the other spouse.. IOW, if 50 or older and one spouse had $13,000 in earned income and the other spouse has $0, then each spouse can contribute $6,500 to an IRA.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
02-18-2018, 09:35 AM
|
#18
|
Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Coronado
Posts: 3,674
|
Quote:
Originally Posted by ownyourfuture
At one point during the return, I was asked about the cost basis of something that happened on July 20th 2017. It was related to my investment in Kinder Morgan (KMI) This is a pipeline company that changed from an MLP, to a conventional stock approximately 3 years ago. I never sold any shares, but for some reason last July 20th, I received a liquidation payout of $13.30
Since all my other tax info downloaded correctly, & apparently nothing showed up, I figured it was one of those situations where you just have to put in a number & hope for the best. So I put in something like $24.27
But later I went back to Fidelity & downloaded a PDF of all the tax information, & it shows a cost basis of zero.
Now I've been trying to go back & change it to zero in TT, but I haven't been able to. If someone could point out how to get to that point/form, it would be much appreciated.
|
There are two ways to adjust the cost basis:
Through the Interview UI- Select Federal Taxes / Wages & Income / I'll Choose What I Work On
- Scroll down to Investment Income / Stocks, Mutual Funds, Bonds, Other and click Update
- Click the Edit button next to the 1099-B that has your transaction
- Click Continue to go past the payer name screen
- Locate the transaction that needs adjusting and click Edit
- Change box 1e to 0 and click Done
Use Forms Mode- Press Ctrl+2 or Cmd+2 to switch to Forms
- Scroll down in the left nav to find the 1099-B in question and click on it
- If you have more than 2 transactions, use the scrollbar that is on the form itself, not the one in the right nav, to locate the transaction
- Change the Cost or other basis to 0, it saves automatically
- Ctrl+1 or Cmd+1 to go back to Interview Mode
|
|
|
02-18-2018, 01:09 PM
|
#19
|
Thinks s/he gets paid by the post
Join Date: Aug 2011
Posts: 3,594
|
Quote:
Originally Posted by cathy63
There are two ways to adjust the cost basis:
Through the Interview UI- Select Federal Taxes / Wages & Income / I'll Choose What I Work On
- Scroll down to Investment Income / Stocks, Mutual Funds, Bonds, Other and click Update
- Click the Edit button next to the 1099-B that has your transaction
- Click Continue to go past the payer name screen
- Locate the transaction that needs adjusting and click Edit
- Change box 1e to 0 and click Done
Use Forms Mode- Press Ctrl+2 or Cmd+2 to switch to Forms
- Scroll down in the left nav to find the 1099-B in question and click on it
- If you have more than 2 transactions, use the scrollbar that is on the form itself, not the one in the right nav, to locate the transaction
- Change the Cost or other basis to 0, it saves automatically
- Ctrl+1 or Cmd+1 to go back to Interview Mode
|
Mmm... Again I am not a TT user but I would be surprised if the way to process OP's 1099-R apparent excessive IRA contribution, would be in the 1099-B section of TT.
-gauss
IRS Certified Volunteer Tax Preparer
|
|
|
02-18-2018, 01:28 PM
|
#20
|
Thinks s/he gets paid by the post
Join Date: Jun 2013
Posts: 1,554
|
Quote:
Originally Posted by gauss
Mmm... Again I am not a TT user but I would be surprised if the way to process OP's 1099-R apparent excessive IRA contribution, would be in the 1099-B section of TT.
-gauss
IRS Certified Volunteer Tax Preparer
|
That was for a completely different issue that I found 'after' the excessive IRA contribution issue was settled.
But as long as you're here....................
What is the box 7 code on the 1099-R and is the taxable amount not determined box checked?
The code shown is P1 & the box you mentioned ‘is not’ checked. The correct amount of $15.90 is shown in box 2a
__________________
"No beast so fierce but knows some touch of pity, but I know none, therefore am no beast"
Shown @ The End Of The Movie 'Runaway Train'
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|