Author Topic: First time investing in Roth IRA and I exceed the income limitation  (Read 790 times)

OMB

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This past year, I contributed to IRA's for the first time. When choosing my workplace retirement deductions, I chose 10% 401k and 5% to a Workplace Roth IRA.

I just became informed that there are income limitations to Roth IRAs. We're way over the AGI limit of $203k for couples.

I now have $6k sitting in my Roth IRA - what can I do at this point to avoid penalties?


terran

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Re: First time investing in Roth IRA and I exceed the income limitation
« Reply #1 on: January 01, 2020, 03:11:11 PM »
There's no such thing as a workplace Roth IRA. Are you sure this wasn't a Roth 401(k)? There's no income limit to those, although if your income is that high you'd probably be better off contributing to the tax deferred part of the 401(k) than Roth.

ender

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Re: First time investing in Roth IRA and I exceed the income limitation
« Reply #2 on: January 01, 2020, 03:17:00 PM »
There's no such thing as a workplace Roth IRA. Are you sure this wasn't a Roth 401(k)? There's no income limit to those, although if your income is that high you'd probably be better off contributing to the tax deferred part of the 401(k) than Roth.

"workplace Roth IRA" could be a reference to the megabackdoor Roth IRA?

secondcor521

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Re: First time investing in Roth IRA and I exceed the income limitation
« Reply #3 on: January 01, 2020, 05:36:37 PM »
This past year, I contributed to IRA's for the first time. When choosing my workplace retirement deductions, I chose 10% 401k and 5% to a Workplace Roth IRA.

I just became informed that there are income limitations to Roth IRAs. We're way over the AGI limit of $203k for couples.

I now have $6k sitting in my Roth IRA - what can I do at this point to avoid penalties?

If it's really a Roth IRA, then:

You can recharacterize the Roth IRA contribution to a traditional IRA.  This would be a nondeductible contribution and would create basis in your traditional IRA.

Or, you can withdraw the entire contribution plus any earnings before the filing deadline of 4/15/20.  You would owe taxes and a 10% penalty on any earnings portion (assuming you're under 59.5).

If it's really through your employer, then what @terran said.

OMB

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Re: First time investing in Roth IRA and I exceed the income limitation
« Reply #4 on: January 01, 2020, 06:22:50 PM »
There's no such thing as a workplace Roth IRA. Are you sure this wasn't a Roth 401(k)? There's no income limit to those, although if your income is that high you'd probably be better off contributing to the tax deferred part of the 401(k) than Roth.

You were right! I feel like an idiot. All this time I thought it was a Roth IRA acct. It's actually a Roth 401(k). Thanks guys

Cornel_Westside

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Re: First time investing in Roth IRA and I exceed the income limitation
« Reply #5 on: January 02, 2020, 11:48:38 AM »
I'd also note that the limit for total 401(k) contributions (Trad and Roth) for 2020 is 19500. So you don't have to limit yourself to $6k in the Roth if you don't want to. However, with an AGI of 203k, you are much likely to be better off making Traditional contributions and deferring taxes to when your income is lower in retirement.