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4 Answers

What is the penalty for making a 2011 ROTH IRA contribution without having earned any taxable income in 2011?

Asked by: megan 381 views YA Discussion

I’ve contributed the maximum of 5K into my Roth IRA this year, but unfortunately I’ve moved abroad and will likely not have the opportunity to earn that 5K in taxable earnings in the US during this year. As far as I know, you must have earned at least as much as you contribute in order to invest in your IRA during that given year.

I’ve asked my accountant about what I should do and he said I would have to speak with my investment house and ask them how I go about withdrawing that 5K from my account.

Does anyone have any insight into this predicament I’m in?

Is there an IRS penality? How exactly does one decide how the 5K comes out after its already been invested?

Thanks in advance!!!

4 Answers

  1. MadMan on Aug 19, 2011 Reply

    There is no penalty if you just withdraw the money.

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  2. Bobbie on Aug 19, 2011 Reply

    And now you are wasting your time and NOT doing what your accountant has advised you do in order to correct this mistake that you admit that you have made by contributing to your ROTH IRA account for the tax year 2011 without having any qualifying earned income that would be required for this purpose in the tax year 2011 RIGHT.
    So ASAP NOW you should contact the trustee of your ROTH IRA account and get the process started in order to correct any possible costly mistake that you may have made by doing this premature ROTH IRA contribution 5000 amount for the tax year 2011 before you knew that would have the necessary qualified earned income that would be required for this purpose during the tax year 2011.
    What if You Contribute Too Much?
    A 6% excise tax applies to any excess contribution to a Roth IRA.
    Withdrawal of excess contributions. For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made.

    http://www.irs.gov use the search box for Publication 590 (2010), Individual Retirement Arrangements (IRAs) Go to chapter 2 for ROTH IRA.


    Hope that you find the above enclosed information useful. 07/29/2011

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  3. Bostonian In MO on Aug 19, 2011 Reply

    Your earned income does not need to be sourced in the US to be eligible for an IRA contribution. The only restriction is that you cannot use the Foreign Earned Income Exclusion and make contributions with those untaxed funds.

    Just call the account custodian and have the funds pulled. There’s no tax or penalty on removing the principal, however any gains are taxable.

    Improper contributions are subject to a 6% excise annually as long as they remain on deposit.

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  4. tro on Aug 19, 2011 Reply

    if your accountant can have it refunded to you or somehow withdraw these funds before the end of the year you should be alright

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