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Employer Roth IRA - Does income restriction apply?
Old 01-12-2014, 07:55 AM   #1
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Employer Roth IRA - Does income restriction apply?

First Time Posting & Hoping to clarify whether my auto-deduct Roth IRA is a problem or not.

I moved to a new employer this year and enrolled in their automatic deduction for Roth IRA because my income should have been at a level that I qualified. At end of year my prior employer paid out a hold-back that I did not think they would since I had left the company. Now my income will be higher than the limit for Roth IRA. Does this matter if it is an employer offered option? If it does, how do I fix it?

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Old 01-12-2014, 08:12 AM   #2
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Hi Coffee Mavin

Welcome to the forums.

You have two options as far as I can see.

#1) Contact your Roth IRA provider and ask them about a form to process a reversal of an "excess contribution". They will issue you a distribution for the contribution that you wish to reverse plus any growth on the contribution.

#2) The other option would be to "recharacterize" your Roth contribution to a traditional IRA contribution. You may prefer this option in that you maintain the option to later do a Roth conversion back to the Roth IRA (since 2010 the income limits to do Roth conversions have been removed). Similar to option 1, you would contact your IRA provider and ask them for a form to initiate a Recharacterization of a Roth contribution.

Either way, you will want to get this all completed in advance of Apr 15 to avoid additional complications.


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Old 01-12-2014, 09:27 AM   #3
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It does not matter if it is an employer provided option, but please do not confuse a Roth IRA with a Roth 401(k). They are different and have different rules.

We overcontributed to Roth IRAs and the way we fixed it was to do nothing. We ended up paying a 6% excise tax on the over contribution and then contributed less the next year.

The 6% excise tax was cheaper than anything else considering stocks went up so much.

The "contributed less the next year" is to ensure that we don't keep paying an annual 6% excise tax.

See, e.g., Bogleheads • View topic - Roth excess contrib, pay excise or recharacterize? and Form 5329.
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Old 01-12-2014, 09:38 AM   #4
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I won't qualify for a Roth next year, so I don't think that is an option. I rarely qualify and last year I should have, but something got paid as income that my contract indicated they would not pay since I left the company. Not complaining as I'll take the surprise income. Just wasn't sure how to fix it since it is an employer plan.

Thanks gauss. I think I'll explore the recharacterization as it would be my preference to move it back to Roth later. Starting to feel like I have accounts all over the place though. This employer doesn't use Vanguard + I have a former Simple, so need to start pushing things back together so i can figure out what I have! I am making a commitment to work a little less & pay better attention to my future financial plan!
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