"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:F7mdnaqIHb_2uTfanZ2dnUVZ_hadnZ2d[at]comcast.com...
- quote -

Sorry, I read this too quickly!

6% per year is plenty of deterrent. Thank you for clarifying.

--
Will

--
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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:F7mdnaqIHb_2uTfanZ2dnUVZ_hadnZ2d[at]comcast.com...
- quote -

Of course it would stay in the account. My question on the loophole is
could someone deliberately overcontribute to Roth IRA, pay the 6% penalty,
and leave the money in the account, taking out proceeds in 30+ years tax
free. Of course they paid tax on money up front, plus the 6%. But the
extra 6% up front might be a whole lot less than 10% compounded interest on
the remaining amount for 30 years taken out tax free at end.

--
Will

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Will wrote:

- quote -

It's 6% per year it stays in the account IIRC.
JOE

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Phil Marti" <prm20871[at]verizon.net> wrote in message
news:Iyjqj.11052$M71.10437[at]trnddc08...
- quote -

It raises a new question: is there any cap on excessive contributions?
Reading Publication 590 it almost sounds like there is a loophole there.
Someone could make an excessive contribution of $100K and they are allowed
to do this as long as they pay 6% penalty on the $100K excessive
contribution amount?


- quote -

So reading through the Excess Contributions section in publication 525, it
sounds like there are only two choices:

1) Employee gets the Simple IRA plan administrator to distribute out the
2007 excess contribution. There is no penalty on that as long as payout is
prior to April filing due date in 2008. Excess contribution is then
declared as income and taxed as ordinary income on the tax return? No
penalty?

2) Employee fails to remove the excess distribution, and in this case they
are forced to treat the excess contribution as ordinary income and in
addition they will be taxed a second time when the money is later taken out
as a normal or early IRA distribution.

I'm inferring 2) from publication 525. The point isn't clear to me.

If the employee asks the Simple IRA plan administrator to distribute out the
excess (and any interest accumulated on that excess) do they need to make
any special request in how that distribution is made?

If overcontribution amount is only $2500, could the employee start a regular
IRA and have the Simple IRA plan administrator transfer the overpayment
directly to the regular IRA, and recharacterize it, thereby avoiding the tax
until the IRA is later distributed?

--
Will

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Will" wrote:

- quote -

You left out the part about the 6% penalty for the excess contribution.

- quote -

No. See IRS Publication 525 regarding excess salary deferrals.

--
Phil Marti
Clarksburg, MD

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

With Roth IRAs, if you overcontribute to the 2007 IRA, you can reclassify
the overcontribution as belonging to 2008 as long as you don't then
overcontribute in 2008. At least this is what the IRS brochure for Roth
IRA says. Is the same true for Simple IRA plans, and if yes then
mechanically how does one move the overcontribution from the Simple IRA 2007
into the Simple IRA for 2008 on the employee's tax return?

--
Will

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >