Roth IRA Contribution

[Yardley CPA]

I have a client who made a $6,000 contribution to a Roth IRA in 2010. Problem is, he or his wife (MFJ) have no earned income. Both are retired and all sources of income are unearned. Can anyone provide some insight on what can be done in this situation? Is there a way or a need to reclassify the contribution?

The contribution is reflected on his return as a carry over of excess contributions.

Thanks!

[Pacun]

Withdraw the money at once. Pay 6% penalty (I believe) and taxes on earnings.

Yes, you can reclassify it as savings by opening a savings account.

[Gail in Virginia]

If they withdraw it by the due date of the return for the year for which it was contributed, I don't think there is a penalty. But they must withdraw both the contribution and any earnings on the contribution. Then when they get the 1099R for this withdrawal during 2011, the code will indicate that the earnings were for the previous year.

[Kea]

This happened to one of my clients last year. He made the $6000 contribution to his Roth but only had about $250 in earnings (rest unemployment & interest / dividends). I told him he had to withdraw the excess. This year he got a 1099R with the withdrawal but only $300 taxable. That would have been the earnings portion. This year he had more than enough earnings to fund his Roth. (Also, he came to me later this year than previously because he's now working an average of 12 hours per day / 6 days a week!)