Advanced Underwriting Consultants

Ask the Experts – April 7

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: My client contributed $6,500 to a Roth IRA last year, but it turns out he earned too much to contribute anything. He has already withdrawn the contribution and its earnings, but is he subject to the 10% early distribution penalty on the earnings?

Answer: We think so.

Neither Congress nor the IRS has addressed the precise issue of whether earnings from excess contributions are subject to the 10% early distribution penalty. Since there’s no special rule, the general rule—that the 10% penalty applies to early distributions—should apply to any gain earned from the excess contribution.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.