Got married and ineligible contributions to Roth IRA – Advice

[Eric9064]

My wife and I got married in 2015 and as a result we exceed the income limitations to contribute to a Roth IRA. My wife made several contributions to her Roth IRA in 2015. As I understand it, in order to avoid a penalty for such contributions, I need to have my wife withdraw all of her 2015 contributions by the April 15 filing deadline and pay the taxes on any gains she made with respect to such contributions. Once we complete this transaction, we plan to use the withdrawn amount to start a traditional IRA.

Looking for advice/confirmation that the above is the proper approach with respect to the excess contributions and that I have not overlooked any required actions. Thanks in advance for any help!

[MDM]

You might recharacterize to non-deductible traditional IRA, then roll over to a Roth IRA.

See https://www.bogleheads.org/wiki/IRA_recharacterization and https://www.bogleheads.org/wiki/Backdoor_Roth_IRA.

[dandarc]

+1 - recharacterize and convert.  Backdoor Roth IRA.  If she doesn't have existing tIRA balance, or you can transfer the tIRA balance to a 401K or similar.

Odds are that if you're over the Roth IRA contribution limit, you're even further over the limit for deducting a tIRA.  So backdoor Roth for you, or taxable account.

[Eric9064]

Great. Thanks for the advice. Much appreciated.

[onlykelsey]

Oh, crap.  my new husband made myRA contributions.  Now we're married and earning 200K+.

Does anyone have any thoughts on that?

[MDM]

Oh, crap.  my new husband made myRA contributions.  Now we're married and earning 200K+.

Does anyone have any thoughts on that?

See https://myra.gov/roth-ira/:
"Generally, a 6% excise tax applies to any excess contribution to a Roth IRA. However, any contribution that is withdrawn on or before the due date (including extensions) for filing a tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contribution are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made."

Get it out of the MyRA, then see the link above about a back door Roth.

[onlykelsey]

Thanks, MDM.  I have done a backdoor roth since I started working (since I started above the income limit) but forced bullied encouraged my then-fiance to open a myRA last year since it didn't seem like he'd be up to opening a brokerage account. 

Certainly he'll trust me for financial advice going forward, haha.