Author Topic: How to fix the situation if Roth IRA contributions end up being "ineligible?"  (Read 647 times)

Nick_Miller

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So I guess the damage is already done, to the extent that my wife and I have contributed $11,000 to our Roth IRAs this year.

Problem is that our total AGI is going be higher than we anticipated, and may exceed $189,900 or even $199,900.

Reasons:
1) My wife received an unexpected $7000 bonus last month

2) If a big case settles at my office before the end of the year, I would be looking at a $25,000 bonus. I never thought this could happen, but now it looks like it might.

3) My novels are doing well saleswise, and I'm earning additional writing income (just $1000 so far, but probably at least $4000 more this year) from working with a new publisher.

For sake of argument, let's say that we can't keep our AGI under the income cap for Roth IRA eligibility...how can we "fix" this?

I've read that the best fix is to move the Roth contributions to Traditional IRAs, along with something called net income attributable (NIA)? Is that something I can just call Vanguard and ask them to do for me? I don't really understand the NIA part, and I'll have to read into that more. Plus, I understand that we still wouldn't be getting the tax deductible benefit of the Traditional IRA this way, but again I've read that it's the best "fix," given that we have already made our Roth IRA contributions.

Anyone have experience with this?

bortman

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My wife and I goofed up and over-contributed in 2017. We're with Vanguard and submitted their "IRA and ESA Excess Contribution Removal Form" to refund the money directly to our bank account.

We decided to that rolling the Roth IRA contribution to a tIRA was too much of a hassle, and because the contribution was for was 2017 the amount earned will minimally affect our taxes.

Here are the notes that I'm keeping in my 2018 tax folder:

Quote
I spoke with a CSR at Vanguard (800-662-2739) who advised that I withdraw the *excess* $5500 contribution as well as the *earnings* of ~$686.18 (capital gains as of 2/3/2018 was $1372.36; 50% of that is "on" the $5500 for 2016, 50% for 2017)

To make this withdrawal happen, complete this form:

http://vanguard.com/pdf/s373.pdf

The CSR sent the form to me via the Vanguard message center so I can submit it electronically.

On the electronic form I can decide if I want to withhold federal/state tax. I elected to not withhold.

In Jan 2019, Vanguard will send a 1099-R for TY2018 because I withdrew the money in 2018. I report the withdrawal on my 2018 tax return. TaxAct should determine the 10% penalty on *earnings*, and/or other taxes. The full amount of the *earnings* will be considered regular income.

My wife had to complete the same process for her Roth IRA.
« Last Edit: July 25, 2018, 09:04:05 AM by bortman »