Comments on: Correcting Roth IRA Contribution Mistakes

By: Sincerely_Yours

Sincerely_Yours — Thu, 29 Oct 2009 13:01:46 +0000

“Comment by Blaine Moore — Jan 11th 2007 @ 9:40 am” is excellent and thanks for fivecentnickel.com too. I shall follow this guideline.

By: nickel

nickel — Sun, 26 Oct 2008 15:26:21 +0000

Satish: The income limits on Traditional IRA contributions have only to do with deductibility. Unlike a Roth IRA, you can contribute regardless of how much you earn, but you can only deduct it if you’re below the threshold.

By: Satish

Satish — Sun, 26 Oct 2008 12:08:47 +0000

Hello.

Mike’s response as well as your original post mentions that one of the options for this problem is “Recharacterizing the contributions to a Traditional IRA” but there are income limits for Traditional IRA also. How will that work since if you are over the Roth IRA income limits, most likely, you are over the Traditional IRA income limits?

Also, you said in your original article that if you re-characterize to traditional IRA, it won’t be tax deductible but it is tax deferred. Is it not tax deductible because you are over the traditional income limits?

Thanks

By: Mike

Mike — Fri, 15 Feb 2008 21:31:54 +0000

Jen – were you able to get any advice or help? I am in the same boat….

Mike

By: jen

jen — Wed, 23 Jan 2008 23:24:32 +0000

Help,
I have over contributed in my Roth IRA in 2007. What is the best way for me to remove the excess
contribution without getting any penalty (before tax due date). Should I use the IRS Form 5329 or have my Trustee remove the excess contributed and mail it to me? Thanks.

By: Denise

Denise — Sat, 19 Jan 2008 20:36:20 +0000

See http://www.irs.gov/publication.....l#d0e11029

By: WALLACE WERNER

WALLACE WERNER — Sun, 06 Jan 2008 22:31:03 +0000

My wife and I opened a Roth IRA account in April of this year (2007) by mistake. We thought we could open it based on our income. The problem is all our income comes from my retirement, social security and interest. We put the max for 2006 of $5000 in each account just before the April 15th deadline then we put the max for 2007 of $5000 in each account after April 15th. I started filling out my income taxes for 2007 a couple of weeks ago and that’s when I discovered that we can’t set up a Roth account. We lost about 40% of I investment on some useless stocks. I was told by Ameritrade that I need to transfer all of the accounts to our joint brokerage account.
I am wondering if I will be able to claim the losses we occured on the investments and what method would I use to show the IRS. Both roth accounts have been transferred back to our regular brokerage account by 12-31-07. Will we have a penalty since we lost money?

By: Wally7

Wally7 — Sat, 24 Nov 2007 01:29:29 +0000

I have another question about excess contributions into a Roth IRA, to which I have not found a definite answer. I work for an organization in the U.S., who pay my salary, but I live overseas and therefore use the foreign earned income exclusion when filing taxes (leaving me no U.S. taxes to pay). My annual salary is below $45,000, and I have been contributing the maximum allowed to a Roth IRA for myself and my wife for about 10 years. However, I recently was told that I might not be eligible to contribute because I use the foreign earned income exclusion (possibly meaning I have no taxable compensation)and therefore must pay an excise of 6% for each year the contributions remained in the IRA, and that I must remove all the contributions and interest payed from the accounts. Before I make a big mistake, I wanted to see if this “advice” is correct. Can you give me some guidance?

By: Sean

Sean — Fri, 13 Apr 2007 15:53:48 +0000

Hello, I opened a SEP account in 2006. I mis understood and thought I could put a lot more money in it. I put in 20,000 but needed the money a week after I opened the account so I asked for a distribution. I realize now that I could have only contributed 4,000 to my SEP. Normally to do an excess contribution removal from the account the money still has to be in there. Is there anyway to reclassify my distribution? It happened before the tax filing deadline.

I called the mutual fund company and they were not helpful.

By: nickel

nickel — Mon, 02 Apr 2007 17:45:51 +0000

You have until taxes are due to make contributions for the previous year. After that, you’re out of luck.

By: Maryann

Maryann — Mon, 02 Apr 2007 17:35:03 +0000

What happens if you said you were going to make a contribution to your Roth IRA, and then you forgot? How do you fix it after the contribution date has passed?

By: 61gemtun

61gemtun — Mon, 05 Mar 2007 18:41:25 +0000

All good information. Thank you. I’m in the situation of having reported a Roth contribution for tax year 2005 (I did my taxes in Jan and intended to contribute before April), but circumstances prevented it. Does anyone have advice for how to correct this scenario?

By: Jason Sadler

Jason Sadler — Mon, 05 Mar 2007 17:08:26 +0000

Good information. Everyone makes mistakes and it’s tough that the financial ones are hard and can hurt you the most.

By: DL

DL — Thu, 08 Feb 2007 21:02:54 +0000

In reading pub 590, it states that you can apply excess contributions to a later year. From my readings, it looks like you can pay the 6% excise tax on the excess portion and leave the money in the account. That excess is then subtracted from what you’re allowed to contribute in the following year.

By: nickel

nickel — Sun, 28 Jan 2007 14:12:45 +0000

tjs: You need to keep track, although this can get sticky. In the case of a mutual fund, you should know the number of shares you bought with your $3k excess contribution, the purchase and sale price, as well as the dividends that have been paid out per share (and on what dates). So that’s pretty straightforward. In the case of an interest-bearing vehicle, it’s probably a bit more difficult, especially if you’ve added money periodically over the year. In short, I guess you’d have to calculate the proportion of interest from each month (or whatever period) goes to your $3k principal (as well as interest on interest earned from that $3k, and so on, going forward). If the $4k is the only money in the account, then it’s going to be a lot easier, because the $3k excess contribution is simply 3/4 of the total (pull out 3/4 of the balance, and anything in excess of $3k is earnings).

By: tjs

tjs — Sun, 28 Jan 2007 09:13:11 +0000

Very helpful information, thanks. I do have the following question though: when withdrawing the excess contributions along with associated earnings, is there a general formula to determine the earnings that need to be withdrawn? For example, if $4,000 was contributed for the year and eventually $3,000 turned out to be in excess, how can we calculate the earnings attributed to the $3,000 excess amount?

By: Blaine Moore

Blaine Moore — Thu, 11 Jan 2007 14:40:21 +0000

I maxed my contribution for last year at the end of the year, and this year I am making regular contributions to about half of my allowed limit throughout the year. I am also making “contributions” for the other half to a savings account, which I will put into the roth at the end of the year to max out. I am nowhere near the bubble, but this way I don’t tie up money and do not need to worry about the hassle of taking money out should it be necessary. I don’t expect that it will be, though.