Income from Roth excess

tobe 19 years ago

I am retired and had no wages, salary, or tips for 2006. Through an error, a dividend check was deposited into an existing Roth IRA. When this was discovered, I withdrew the check as an excess contribution. There was about $7 of income earned on the excess contribution while it was in the Roth IRA. IRS Pub 525 tells me to put that $7 on line 7 of Form 1040 (wages, salary, tips). However, I am retired and had no earned income for 2006, so this makes no sense to me. It is not as if it is income generated by an 'earned income' excess contribution. If I list 'income' on line 7 of Form 1040, I will have to file a local tax return (taxed on earned income only), and I am trying to avoid ANOTHER form to fill out. Should I just include it as interest income,and include an explanatory note with my return?

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Shyster1040 19 years ago

What was the source of the dividend check?

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bono9763 19 years ago

I think you are confused. First, you should be using Pub.

590, not 525. On page 62 there is a worksheet to calculate the taxable amount of the distribution, which you apparently determined was $7. But the instructions for Line 16 of this worksheet say "Enter the smaller of the amount [that is] on line 7 or the amount [that is] on line 15 [of the worksheet]. This is your taxable distribution." It doesn't mean to enter that amount on line 7 of the 1040. You would enter it either as interest or dividend income on your 1040, depending on where it came from. There's no need to attach an explanation. Dennis

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Bill 19 years ago

Had you withdrawn that $7 at the same time during calendar year 2006, there would be no issue.

The $7 is an amount which is generally considered "de minimis" (Hope that Latin is correct) -- or too insignificant to worry about. But you could reasonably comply with the spirit of the requirement by noting the $7 under "other income" on line 21, noting it was "interest earned by a mistaken deposit to your Roth IRA, which was corrected." Or you could just include it as "interest" and describe it similarly (as briefly as possible) when you enter it on Schedule B. I would avoid a separate explanatory note, when just a few words can define it. Bill

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