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Roth limitations....
Old 02-28-2009, 12:54 PM   #1
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Roth limitations....

What happens if you fund a Roth and then later in the year realize you made too much money and don't qualify?

This could potentially happen to us this year, but I think after deducting our 401K contributions, our income will be under the limits. What happens, though, if it isn't? Haven't funded the Roth's yet...

simple girl
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(48, married; DH 52. I am fully retired as of 2015 (well ok, I still work part-time but only because I love the job and have complete freedom to call off if I want to travel with hubby for work), DH will fully retire 2018 when he turns 55 to access 401K penalty-free)
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Old 02-28-2009, 01:17 PM   #2
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When I overfunded an individual 401(k), I simply withdrew the number of shares I purchased and claimed the gain I had on that portion as a taxable distribution.

(that was back when I gad gains)

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Old 02-28-2009, 03:38 PM   #3
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SG -

Had the situation you described this year. When you discover that you will be over the income limits, you should contact your Roth custodian and request a withdrawal of excess contributions plus earnings. They will have an IRS-approved method for computing the earnings. To make this the simplest for you, you should make this request before your tax filing date in 2010.

Now, the zinger. If your contributions produced positive earnings (ours didn't this year, obviously), then those earnings (not the contributions, since it was a Roth) will be taxable PLUS subject to the 10% penalty for those under 59 1/2.

If you make the withdrawal this year, then you will get a 1099-R for this tax year, in early 2010. If you wait until early 2010 to make the w/d (for 2009's taxes), then you will get the 1099-R the following year. In either case, you need to account for the withdrawal on your tax form for 2009 taxes.
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