Over funded Roth IRA

[dlatin]

Actually, we funded our Roth IRAs this past year, come to find out we are above the ceiling to contribute.

Therefore we have to remove the $ we've added to our accounts. I'd really like some advice around my options. I've been trying to find something on the interweb about this but am having trouble. When I do find something I get tired head.

Any help would be appreciated!!!

Thanks

 

[homer]

hmm? your only option is to withdraw the excess.

however, you can assign/move the excess as a contribution for 2008 (if you will still remain under Roth limits).

 

[AstroVol]

I think he's saying that his income exceeds the Roth limits, but he opened and funded an account before he realized this.

 

[dlatin]

right, I figured 2007 would be the last year I could contribute, but had an unexpected salary increase mid year that put me over.

I think I read it could be moved to a traditional IRA? If I already maxed out my 401(k), can I contribute to an IRA? My wife did not max out or contribute much last year so effectively we could possibly move all $8k into an IRA? We already have a converted IRAs with Vanguard for both of us.

Also, when I take out of the Roth, I believe I have to pay ordinary income taxes on my gains, most likely losses in 2007. But do I also have to pay early withdraw penalties?

 

[homer]

hmmm...oh. the "over funded" in the title got me.

anyway, i am not able to advice on this. might want to wait for a real pro for this one.

 

[dlatin]

Guidance I'm getting is that I can request Vanguard to recatagorize thiis into a non-deductable traditional IRA.

 

[dlatin]

OK, for those interested, all you have to do is fill out a recharacterization form and recharacterize the Roth IRA contribution to a traditional IRA.

 

[SullHorn]

Aren't traditional IRA contributions tax-deferred? Since you've paid the taxes on the Roth IRA contributions, won't recharacterizing cause you to miss out on a tax deduction for 2007?

 

[dlatin]

Yes, but I'm happy to just have it taken care of. I was imagining a pretty big cluster.

 

[TexasEd]

file an amended tax return if you have already submitted it and wala - less tax liability.

 

[CO Horn]

If you're in an employer plan (401k) and your income is too high for a Roth, then its too high for a deductible IRA contribution. It can be recharacterized as a non-deductible IRA contribution.