Roth IRA in 2017 for 2016

[Richcpaman]

Client contributed to Husband and Wife's ROTH IRA's in 2017 for 2016 year.   Maxed out, $5,500 each.

Need to file separate due to student loan debt.

Kicks out the contribution, and asserts a penalty of $660 each.

Ouch. 

Tell client to just withdraw the Roth contribution before April 15th, no problem. 

Broker says they can't do that.  WTH?

Thoughts?

[RitaB]

1 hour ago, Richcpaman said:

Client contributed to Husband and Wife's ROTH IRA's in 2017 for 2016 year.   Maxed out, $5,500 each.

Need to file separate due to student loan debt.

Kicks out the contribution, and asserts a penalty of $660 each.

Ouch. 

Tell client to just withdraw the Roth contribution before April 15th, no problem. 

Broker says they can't do that.  WTH?

Thoughts?

Broker needs a hug.  That infuriates me.  If you have till 4/15 to contribute, you have till 4/15 to undo what you did.  OMG.

http://fairmark.com/retirement/roth-accounts/contributions-to-roth-accounts/excess-contributions-to-roth-iras/

 

[Catherine]

Rita is correct; they DO have until 4/15 to withdraw.  Broker is an idiot or doesn't want to do the paperwork; they need to dump him/her/it.  

Alternative - if 2017 situation is different - is to re-characterize to 2017 contribution.

[Roberts]

I wonder if the issue isn't that they can't versus it would be expensive or embarrassing to do so.

For example, maybe they put it in an annuity. Oddly, yes people invest in annuities within an IRA.

[FDNY]

7 minutes ago, Roberts said:

I wonder if the issue isn't that they can't versus it would be expensive or embarrassing to do so.

For example, maybe they put it in an annuity. Oddly, yes people invest in annuities within an IRA.

That's what it sounds like.  They don't want to give back a commission, or if it is an annuity it is past the 20 day free look period.   This isn't over.

[Richcpaman]

There has to be something going on. Broker being an idiot is one.

Maybe an annuity in the IRA is another.

*I* just knew that he could roll it out.  Even, just roll it from Roth to Regular IRA and be non-Deductible, and then "Back-Door" that to the Roth,

Rich

 

[grandmabee]

could they do injured spouse and still file MFJ?

[Richcpaman]

14 hours ago, grandmabee said:

could they do injured spouse and still file MFJ?

GrandmaBee:

That isn't the issue.  They are on Income Based repayment plans for their student debt.  If they file joint, the student debt repayments triple or quadruple.  Much heavier cash cost than the additional tax due to MFS.

Rich

 

[jasdlm]

10 hours ago, Richcpaman said:

GrandmaBee:

That isn't the issue.  They are on Income Based repayment plans for their student debt.  If they file joint, the student debt repayments triple or quadruple.  Much heavier cash cost than the additional tax due to MFS.

Rich

 

I have this situation, and I absolutely think it is the worst public policy ever.  Unconscionable.  The student loan payments should be able to be reduced to the same level regardless of filing status.  Give up money on one side to gain on the other.  Many hugs to go around.  When my first client to experience this came to me and said he had to file MFS several years ago, I thought he for sure had to have misunderstood and actually sat with him through a call to the loan peeps.  Then did further research.  Unreal.