Excess IRA contribution

[ironmom]

How do I account for the following regarding excess IRA contributions made in 2021 TY? Do I amend 2021 for excess IRA contributions made last year, or do I show it on 2022 Form 5329? I told the clients the amount to put in each of their IRA's but they got them switched and put the amount for hers (which was limited) in his and vice versa.

[qbteachmt]

"I told the clients the amount to put in each of their IRA's but they got them switched and put the amount for hers (which was limited) in his and vice versa."

Are you certain there cannot be a spousal allocation that resolves this?

Otherwise, you would report the excess every year until it is removed, including gain/loss.

Which type of IRA account is this? Are they able to apply the overage to the following year, instead of removing it? Because now you have two year ends gone past.

[ironmom]

I will be more specific  - for the 2021 tax year TP was allowed $7,000 (spousal contrib.)  Spouse was allowed $1,990.  They put $1,990 in his and $7,000 in hers.  These are traditional IRA's.  They may be able to apply a portion of it to the 2022.

[rbynaker · Accepted solution]

I think we may still be short on details but it sounds like you don't have an excess contribution, just a non-deductible contribution.  Amend the 2021 return with the correct entries and see if the software throws some basis on an 8606.

A lot of folks confuse excess contributions with non-deductible contributions.

[qbteachmt]

It might still be deductible. If you are not familiar with spousal IRA:

https://www.investopedia.com/terms/s/spousal-ira.asp

"A spousal IRA is a strategy that allows a working spouse to contribute to an individual retirement account (IRA) in the name of a non-working spouse with no income or very little income. This is an exception to the provision that an individual must have earned income to contribute to an IRA. However, the working spouse's income must equal or exceed the total IRA contributions made on behalf of both spouses."

One thing that changed from original, is how you no longer need separate account types for all the purposes. For instance, one Trad IRA account, if the brokerage or bank allows it, can hold rollovers, contributions, and spousal allocations. In the "olden" days, people would open a new account every time they had a rollover or conversion and only put contributions in yet another account.

https://www.investopedia.com/ask/answers/160.asp

[ironmom]

Thank you for responding to my question but as you can see there was a spousal contribution that I mentioned when I attempted to clarify.

I believe I have it figured it out now.

I really do appreciate all of the responses.

Thanks!