Return of Contribution (from IRA's)
A Return of Contribution (ROC) from an IRA occurs when a taxpayer withdraws funds that were previously contributed to a traditional IRA and then returns those funds to the IRA within a specified time frame. This process is often used to correct an excess contribution or to avoid taxes and penalties on a non-deductible contribution.
Key Points About Return of Contributions
- Timing: The return must be made by the due date (including extensions) of the tax return for the year in which the contribution was made.
- Amount: Only the original contribution amount (not earnings) can be returned. Earnings are taxable and may be subject to penalties.
- Reporting: The return must be reported on Form 1040, Schedule 1, line 20, and may require Form 8606 if nondeductible contributions are involved.
- Documentation: Keep records of the original contribution and the return to support your tax filing.
When Is a Return of Contribution Used?
- To correct an excess contribution that exceeds the annual contribution limit ($7,000 for 2025, $8,000 if age 50 or older).
- To return a non-deductible contribution that was mistakenly made or no longer desired to be claimed as deductible.
- To avoid taxes and penalties on contributions that were not eligible for a deduction due to income limits or other restrictions.
How to Report a Return of Contribution
When returning a contribution, you must:
- File Form 1040 and report the return on Schedule 1, line 20.
- If you made nondeductible contributions, complete Form 8606 to track basis in your IRA.
- Ensure the return is made before the tax filing deadline (including extensions) for the year of the original contribution.
Source:
Publication 590-A
Publication 590-B
Form 8915-F
Disclaimer: Always verify details with official IRS forms and instructions or consult with a tax professional. OLT (Online Taxes) provides guidance based on retrieved information but does not offer personalized tax advice.