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Removing a Traditional IRA contribution for 2023 that became non dedutible

Forum|Forum|1 year ago
June 26, 2024
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My situation is very similar to this post, but not exactly the same.

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/unwanted-traditional-ira-contribution/00/2620960

There was a mistake that was not caught until after filing that raised my AGI, making my ROTH deduction ineligible but the Traditional IRA contribution for my wife still eligible (per an extended phone conversation with the IRS).

Per the IRS Agent as long as the Roth contribution is withdrawn within 6 months of making the contribution along with any earnings, there no penalty or excess contributions to track. The Roth withdrawal has been requested and is in the works.

Doing the amended return in TurboTax I see my the contribution to the Traditional IRA for my wife is allowed but has become Non Deductible.

That does me no good, we're facing RMD's in a couple of years and If I can't get the tax break now, I'd rather not add to the RMD tax burden.

So the question is for 2023 in preparation for the amended return, is it OK to request the investment company to remove the Traditional IRA contribution (a change of mind).

If it is, is there a an allowed time to get it done (knowing the Roth removal was required within 6 months)?

Thanks in Advance! (always good to learn something new).

Best answer by dmertz

"... as long as the Roth contribution is withdrawn within 6 months of making the contribution along with any earnings, there no penalty or excess contributions to track. The Roth withdrawal has been requested and is in the works."

That's incorrect. The deadline has nothing to do with the date that the IRA contribution for 2023 was made. As long as by April 15, 2024 you filed your 2023 tax return or requested a filing extension, you have until October 15, 2024 to recharacterize or obtain a return of the IRA contribution, otherwise recharacterization or return of the contribution is not permitted. As long as these deadlines are met, you are permitted to obtain a return of the traditional IRA a contribution made for 2023 regardless of whether the traditional IRA contribution is an excess contribution (which, in this case, it is not).

D

dmertzAnswer

Employee

"... as long as the Roth contribution is withdrawn within 6 months of making the contribution along with any earnings, there no penalty or excess contributions to track. The Roth withdrawal has been requested and is in the works."

That's incorrect. The deadline has nothing to do with the date that the IRA contribution for 2023 was made. As long as by April 15, 2024 you filed your 2023 tax return or requested a filing extension, you have until October 15, 2024 to recharacterize or obtain a return of the IRA contribution, otherwise recharacterization or return of the contribution is not permitted. As long as these deadlines are met, you are permitted to obtain a return of the traditional IRA a contribution made for 2023 regardless of whether the traditional IRA contribution is an excess contribution (which, in this case, it is not).

G

gxt1Author

Thanks much for the reply!

I got if figured out today while I was reading through the pubs waiting on hold to talk to the IRS, again. I never did get to speak to the person I needed as I was disconnected twice during (lengthy) holds. But it gave me plenty of time to read.

From Pub 1090a Page 30

When Can You Withdraw or Use Assets?

You can withdraw or use your traditional IRA assets at any time.

However, a 10% additional tax generally applies if
you withdraw or use IRA assets before you reach age
591/2.

Note. If you timely filed your 2023 tax return without
withdrawing a contribution that you made in 2023, you can
still have the contribution returned to you within 6 months
of the due date of your 2023 tax return, excluding extensions.
If you do, file an amended return with “Filed pursuant
to section 301.9100-2” written at the top. Report any
related earnings on the amended return and include an
explanation of the withdrawal.

I did make the actual contribution in 2024 (before April 15th) but for 2023 return. No doubt that's what they meant; any contribution made for 2023 can be removed within 6 months of the due date of the 2023 return, but had it been expressed as I just did, it would have been clearer.

It's interesting too that they make you remove earnings for the Traditional IRA along with the contribution. Removing earnings for Roth makes sense but for the Traditional IRA it's all going to get taxed in the end anyway.

It's also interesting that the earned income is to be reported on the 2023 amended return.

fanfare

Employee

If you changed your mind, to get the earnings out you have to use the custodian's form "excess plus earnings" even though your IRA contribution is permitted.

This is the rule for removal before the tax due date (including extensions).

@gxt1