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For Proseries Basic, Line 7 on the IRA Contributions worksheet, says Excess Traditional IRA Contribution credit. I have a client who made a $4,300 excess contribution in 2019. My understanding is that there is a 6% excise tax on that amount. When doing the federal review for 2020, I came to that worksheet and I have to put an amount on Line 7 of the worksheet. Can the client use this 4,300 for a 2020 credit and it then be a deduction on their 2020 return? Does that remove the excise tax? If so, can someone point me to the regulation for this? Thanks.
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"can someone point me to the regulation for this?"
google it; it's everywhere:
how to correct traditional ira excess contribution
Pub 590-A: https://www.irs.gov/publications/p590a
But I like these types of listings: https://www.investopedia.com/articles/retirement/04/042804.asp
You can leave it and keep paying that 6% tax; you can remove it and pay the income tax on the excess + earnings; you can pay that 6% tax until you manage to fully allocate it across upcoming years ("use it up") which can be risky in a moving earnings timeframe (they might not qualify to use it, next year).
Don't yell at us; we're volunteers
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Thank you. I did google it and I somehow missed seeing that you could apply it as a deduction in the following year, not sure how I missed it.
The client will use the entirety in 2020 and the 6% excise tax will stop. there is enough earned income this year to do it.
Again, thank you. Enjoy the rest of your day.
