My wife and I contributed the maximum for our age ($11,000 combined) to a Roth IRA for the 2015 tax year. It turns out we unexpectedly made too much money to be eligible at all. I shouldn't have contributed anything.

I know my options (convert to traditional IRA, pay 6% penalty, etc) and I just want to take out the money and then put it back in for the 2016 tax year when we will be eligible again. My question is how this affects taxes for 2015 and 2016.

I'm removing the excess now and will get a 1099-R (for the earnings on the excess and 10% penalty) that I will use when I file my 2016 taxes, but does this affect 2015's taxes at all?

  • 3
    Not relevant for 2015 at this point, but you should look into backdoor Roth IRA contributions for future years. – Eric Feb 22 '16 at 18:04
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    Why not re-characterize it to a Traditional IRA contribution and then convert it to Roth IRA now? If you don't have any existing money in pre-tax IRAs, the end result is the money is in a Roth IRA like now, you haven't used any of your 2016 contribution, you don't have any penalties, and just have to pay ordinary income tax on the earnings so far. – user102008 Feb 22 '16 at 19:41
  • @Eric - I don't think it will be an issue for a few years since this year was a bit of an anomaly. But thanks for tip. – DreamsCrumbleInc Feb 22 '16 at 20:44
  • @user102008 - I can look into it. I was just trying to get my head around the tax implications for taking the simplest approach before adding in more complications. Seems odd there are limits on a Roth IRA at all when the backdoor option is there. Is the only difference that the backdoor contributions have to be seasoned for 5 years before you can take them out? – DreamsCrumbleInc Feb 22 '16 at 20:48
  • @DreamsCrumbleInc: Well, mostly no. Withdrawal of conversions from a Roth IRA within 5 years are subject to penalty, but only on the portion of the conversion that was taxable. Since most of the conversion (all in the case you convert immediately after contributing) will be non-taxable, there will mostly be no penalty. – user102008 Feb 22 '16 at 21:18

Just FYI, as I am learning now, you'll get your 1099-R in 2016, but the earnings and penalty are part of your 2015 taxes. You have to anticipate the numbers that will be on the 2016 1099-R for your 2015 taxes. Since this is way past 2015, you may need to amend your 2015 taxes.

You have my sympathies. I just realized this a few days ago for my 2016 taxes while filing my 2017 taxes.

  • Why the downvote? Is there something incorrect or unhelpful? The overcontribution absolutely affects the 2015 taxes unless the backdoor strategy is employed. – aggieNick02 Mar 19 '18 at 14:06

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