Roth excess contribution

[Margaret CPA in OH]

Client has 1099R showing code PJ from Roth.  He says in July he realized that he was overinvested in the Roth and asked the advisor to make the overage a 2022 contribution. So the codes mean early distribution no known exception and excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2021 (but the form is 2022).

Is there a maximum time limit to make that sort of change?  I think I do need to see the statement showing that the amount was then deposited for 2022.  Anything else?  It means the 10% penalty of about $250 for a new graduate not making a lot of money.

[DANRVAN]

I am not

On 4/7/2023 at 2:20 PM, Margaret CPA in OH said:

.  He says in July he realized that he was overinvested in the Roth and asked the advisor to make the overage a 2022 contribution.

 

I am not following the sequence of events here at all Margaret.

On 4/7/2023 at 2:20 PM, Margaret CPA in OH said:

  It means the 10% penalty of about $250 for a new graduate not making a lot of money.

But I am almost certain the penalty applies only to earnings in the case of a Roth.  $250 does not sound like 10% of earnings to me.

[DANRVAN]

On 4/7/2023 at 2:20 PM, Margaret CPA in OH said:

for a new graduate not making a lot of money.

So that must mean he either contributed more than $6,000; or contributed up to $6,000 but his earnings were less than contributions?

 

I am not following this part either for new grad note making a lot of money.

On 4/7/2023 at 2:20 PM, Margaret CPA in OH said:

new graduate not making a lot of money.

 

So assume he did not earn $xxx,xxx and hit the income limitation.

[Margaret CPA in OH]

Thanks, DANRVAN, for your comments.  I am still awaiting answers.  I have asked for the statements of the account but not yet received anything.  The $250 penalty on 5329 is calculated before showing the amount NOT subject to tax.  I have not received that as yet so not sure how much is basis vs earnings.

It occurred to me that this should have been a 2021 issue.  He graduated in June 2022.  Parents are long time clients so I prepared his returns for 2019, 2020, and 2021.  For 2021 he had less than $3000 self employment income.  For 2022 his wages with no deferrals or company Roth were only $23,180.  So wondering how he could have so much in a Roth and not reported previously.  And how much could he have contributed in 2021 and still have $$?  Hmmm...  Something funny here.

[DANRVAN]

2 hours ago, Margaret CPA in OH said:

And how much could he have contributed in 2021 and still have $$?  Hmmm...  Something funny here.

 

Parents gifted the contribution? 

[Margaret CPA in OH]

A reply this morning brought lots of information and the statements, yay!  Grandparents were the generous providers.  I haven't had time yet to comb through for ALL the details and values for earnings only.  But I think I have the data to get there.  And the statements show all the transactions.  I do believe I will be asking for ALL statements since inception, though, as his wages (summer jobs) in 2019 and 2020 may not support the contributions. 

Thanks for the prodding!