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Feb 21, 2017 12:03:33 GMT -5
Post by The Walk of the Penguin Mich on Feb 21, 2017 12:03:33 GMT -5
Has anyone ever over contributed to their Roth? It looks like I might have this problem, but won't know until the accountant does his magic and get our AGI.
I contributed to my 2016 Roth in Spring of 2016, a few months after TD and I got engaged. At the time, I did not have any idea as to when we were going to get married, but figured it would be next year. Instead, we decided to get married while we were on vacation in South Africa in September. When you combine my income, and TD's income (he had a really substantial severance package when his office shuttered in Jan), if we are not close to the Roth IRA cap, we are over it.
From my reading, I'll need to pull the $6500 I contributed out of it before we file our taxes in order to avoid a 6% penalty. Would I have to pull out earnings too?
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countrygirl2
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Feb 21, 2017 12:22:33 GMT -5
Post by countrygirl2 on Feb 21, 2017 12:22:33 GMT -5
Yes we did in the past and the money was returned to us, its been quite a long time ago so don't remember the details.
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whoisjohngalt
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Feb 21, 2017 12:33:45 GMT -5
Post by whoisjohngalt on Feb 21, 2017 12:33:45 GMT -5
Have you run your numbers for MFS?
Usually, it's not a good solution, but run the numbers and see where you are
And CONGRATS on getting married!!!!!!!!!!
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Feb 21, 2017 12:37:32 GMT -5
Post by The Walk of the Penguin Mich on Feb 21, 2017 12:37:32 GMT -5
UGH! I just got off a chat with Fidelity.
Not only do I need to remove the $6500 I contributed, I need to remove any earnings I got from that. Add to this that I am also going to get hit with a 10% penalty for removing the earnings. It also means that I need to sell any investments that I have before I remove them in order to have $6500 + earnings in cash. I think I have only about $500 or so sitting in cash right now.
I guess I need to go back and figure out which investments are my poorest performers.
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Anne_in_VA
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Feb 21, 2017 12:47:05 GMT -5
Post by Anne_in_VA on Feb 21, 2017 12:47:05 GMT -5
I feel your pain! Before I went to start a Roth, I checked to see what the income limits were thank goodness or I'd have been in the same position. Sorry!
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Anne_in_VA
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Feb 21, 2017 12:49:20 GMT -5
Post by Anne_in_VA on Feb 21, 2017 12:49:20 GMT -5
I need to check with Fidelity too. I got a letter from them telling me how much my RMD for 2017 will be and I need to find out if it's for my 401k or the rollover IRA. The letter doesn't specify which account its for.
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Anne_in_VA
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Feb 21, 2017 12:49:32 GMT -5
Post by Anne_in_VA on Feb 21, 2017 12:49:32 GMT -5
Double post.
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endofera
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Post by endofera on Feb 21, 2017 13:10:45 GMT -5
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Feb 21, 2017 13:27:52 GMT -5
Post by The Walk of the Penguin Mich on Feb 21, 2017 13:27:52 GMT -5
If you have any other (non-Roth) IRAs, the taxable portion of any conversion you make is prorated over all your IRAs; you cannot convert just the non-deductible amount.[3] In order to benefit from the backdoor, you must either convert your other IRAs as well (which may not be a good idea, as you are usually in a high tax bracket if you need to use the backdoor), or else transfer your deductible IRA contributions to an employer plan such as a 401(k) (which may cost you if the 401(k) has poor investment options).Probably not a great idea. I have a traditional IRA from my job that I left in 2000 (that is about 1/3 of my retirement holdings) that would get taxed at my current tax rate. That would be ugly.
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hsclassic
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Feb 22, 2017 9:15:57 GMT -5
Post by hsclassic on Feb 22, 2017 9:15:57 GMT -5
No big deal to recharacterize as a Traditional IRA. DH and I had to do that 1-2x. We left that money in the Traditional IRA until we retired and then, at our lower tax rate, we converted the Traditional IRA money into the Roth IRA. For tax planning purposes, we decide before each tax year how much of that Traditional IRA to convert so we keep our effective tax rate under 10%.
Either your accountant or Fidelity can tell you how much you need to recharacterize, and Fidelity should be able to take care of it for you. (We use American Century and they took care of everything for us.) Your accountant can confirm, but you do not have to recharacterize right away - just let it sit there as a Traditional IRA until you are financially ready to recharacterize.
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Feb 22, 2017 10:24:41 GMT -5
Post by The Walk of the Penguin Mich on Feb 22, 2017 10:24:41 GMT -5
No big deal to recharacterize as a Traditional IRA. DH and I had to do that 1-2x. We left that money in the Traditional IRA until we retired and then, at our lower tax rate, we converted the Traditional IRA money into the Roth IRA. For tax planning purposes, we decide before each tax year how much of that Traditional IRA to convert so we keep our effective tax rate under 10%. Either your accountant or Fidelity can tell you how much you need to recharacterize, and Fidelity should be able to take care of it for you. (We use American Century and they took care of everything for us.) Your accountant can confirm, but you do not have to recharacterize right away - just let it sit there as a Traditional IRA until you are financially ready to This is not the problem. I already have a rather substantial traditional IRA from a roll over at another job. To turn this into a traditional and recharacterize it, that older IRA is factored in. But problem is not recharacterizing it, but paying taxes on it. The tax liability to recharacterize it would be either 28% at this point. I don't think so. This isn't the way to go. The taxes I get hit with will be considerable at this point.
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Value Buy
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Feb 22, 2017 10:34:18 GMT -5
Post by Value Buy on Feb 22, 2017 10:34:18 GMT -5
You are in an actual 28% tax rate? After deductions, etc?
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Post by The Walk of the Penguin Mich on Feb 22, 2017 10:49:03 GMT -5
You are in an actual 28% tax rate? After deductions, etc? Right now, it is questionable as to whether or not our AGI for 2016 is under what is allowable for me to contribute to a Roth IRA.
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Deleted
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Post by Deleted on Feb 22, 2017 10:58:38 GMT -5
No big deal to recharacterize as a Traditional IRA. DH and I had to do that 1-2x. We left that money in the Traditional IRA until we retired and then, at our lower tax rate, we converted the Traditional IRA money into the Roth IRA. For tax planning purposes, we decide before each tax year how much of that Traditional IRA to convert so we keep our effective tax rate under 10%. Either your accountant or Fidelity can tell you how much you need to recharacterize, and Fidelity should be able to take care of it for you. (We use American Century and they took care of everything for us.) Your accountant can confirm, but you do not have to recharacterize right away - just let it sit there as a Traditional IRA until you are financially ready to This is not the problem. I already have a rather substantial traditional IRA from a roll over at another job. To turn this into a traditional and recharacterize it, that older IRA is factored in. But problem is not recharacterizing it, but paying taxes on it. The tax liability to recharacterize it would be either 28% at this point. I don't think so. This isn't the way to go. The taxes I get hit with will be considerable at this point. But you can still recharacterize as Traditional and NOT convert. You just wouldn't get the deduction.
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Feb 22, 2017 11:14:18 GMT -5
Post by The Walk of the Penguin Mich on Feb 22, 2017 11:14:18 GMT -5
This is not the problem. I already have a rather substantial traditional IRA from a roll over at another job. To turn this into a traditional and recharacterize it, that older IRA is factored in. But problem is not recharacterizing it, but paying taxes on it. The tax liability to recharacterize it would be either 28% at this point. I don't think so. This isn't the way to go. The taxes I get hit with will be considerable at this point. But you can still recharacterize as Traditional and NOT convert. You just wouldn't get the deduction. Why would I want to recharacterize something as a traditional IRA when the funds have already been taxed? If I do this, there is absolutely no benefit to me. I get taxed again when they are withdrawn, and I am required to withdraw them on the IRS schedule as an RMD. Right now, the vast majority of my retirement is in tax deferred funds. My Roth and a fairly substantial savings account (yeah.....I know that the rate sucks but I was using it as a holding account that I made my Roth contributions from, and my emergency fund) are not. I was trying to even out the balance of the two. After doing some digging around, I might be able to get the 10% penalty waived due to my disability status. If this is the case, then I'll just open up another investment account. By doing this, it gives me a place to cycle my savings to. Even if I can't do this, taking the 10% penalty hit on the earnings is better than needing to pay taxes on the contribution again and having it tied up in a traditional IRA.
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973beachbum
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Post by 973beachbum on Feb 22, 2017 16:51:19 GMT -5
UGH! I just got off a chat with Fidelity. Not only do I need to remove the $6500 I contributed, I need to remove any earnings I got from that. Add to this that I am also going to get hit with a 10% penalty for removing the earnings. It also means that I need to sell any investments that I have before I remove them in order to have $6500 + earnings in cash. I think I have only about $500 or so sitting in cash right now. I guess I need to go back and figure out which investments are my poorest performers. I get you already paid taxes on it but if you could get it converted to a trad IRA you might save money on things like the 10% penalty and the selling issues ect.
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Post by Deleted on Feb 22, 2017 16:56:51 GMT -5
UGH! I just got off a chat with Fidelity. Not only do I need to remove the $6500 I contributed, I need to remove any earnings I got from that. Add to this that I am also going to get hit with a 10% penalty for removing the earnings. It also means that I need to sell any investments that I have before I remove them in order to have $6500 + earnings in cash. I think I have only about $500 or so sitting in cash right now. I guess I need to go back and figure out which investments are my poorest performers. I get you already paid taxes on it but if you could get it converted to a trad IRA you might save money on things like the 10% penalty and the selling issues ect. Plus there is still the option to convert into a Roth at sometime in the future when income is low and before RMDs kick in. I think there are a few retired people on here that convert a certain amount of pre-tax yearly. But really though, how much of a penalty/tax are we talking on a year of earnings on $6500? I know it was a good year, but if you have a couple doggy funds in there you could sell it might not be much.
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countrygirl2
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Feb 23, 2017 9:55:15 GMT -5
Post by countrygirl2 on Feb 23, 2017 9:55:15 GMT -5
They must have changed things since we had to do it. I got a letter saying we have over contributed, they sent the money and interest back and that was it, no penalty. But again that has been a long time ago.
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Feb 23, 2017 10:44:13 GMT -5
Post by The Walk of the Penguin Mich on Feb 23, 2017 10:44:13 GMT -5
They must have changed things since we had to do it. I got a letter saying we have over contributed, they sent the money and interest back and that was it, no penalty. But again that has been a long time ago. This is per a Fidelity chat, so I suspect that the rules have changed. The accountant knows that we need this figure ASAP so I can start moving things around if we are over the AGI limit. From what I read, it is imperative that it gets done before we file 2016 taxes, or I get slammed with 6% excise tax too.
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brdsl
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Feb 23, 2017 16:22:37 GMT -5
Post by brdsl on Feb 23, 2017 16:22:37 GMT -5
Do you live together? Probably a silly question, but maybe it is applicable. Married (filing separately) can use the limits for single people if they have not lived with their spouse in the past year. www.rothira.com/roth-ira-limits
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Feb 24, 2017 10:34:12 GMT -5
Post by The Walk of the Penguin Mich on Feb 24, 2017 10:34:12 GMT -5
Not applicable!
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tallguy
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Feb 24, 2017 17:13:29 GMT -5
Post by tallguy on Feb 24, 2017 17:13:29 GMT -5
You are in an actual 28% tax rate? After deductions, etc? Right now, it is questionable as to whether or not our AGI for 2016 is under what is allowable for me to contribute to a Roth IRA. How do you not know at this point? I read that you are waiting for the accountant, but don't you have all the information you need to figure it out? I'm guessing all of your paperwork is in hand, and a complication in doing your taxes may be the earnings from the Roth contribution that may need to be pulled out if your income is too high, but that would not affect whether you are under the limit to begin with. What am I missing? And would you be over the cap or in the phase-out range? Would you have to withdraw the entire contribution and all of its associated earnings or just a portion of them?
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Feb 24, 2017 18:27:56 GMT -5
Post by The Walk of the Penguin Mich on Feb 24, 2017 18:27:56 GMT -5
Right now, it is questionable as to whether or not our AGI for 2016 is under what is allowable for me to contribute to a Roth IRA. How do you not know at this point? I read that you are waiting for the accountant, but don't you have all the information you need to figure it out? I'm guessing all of your paperwork is in hand, and a complication in doing your taxes may be the earnings from the Roth contribution that may need to be pulled out if your income is too high, but that would not affect whether you are under the limit to begin with. What am I missing? And would you be over the cap or in the phase-out range? Would you have to withdraw the entire contribution and all of its associated earnings or just a portion of them? This year is more complicated than ever. My personal finances are easy, but TD's are not and this year was even more complicated due his office shuttering, and him working as a consultant. So he has deductions and income all over the place. I made the Roth contribution before we were married (in fact, I made it before he started consulting) which I was eligible to do from my income. Adding my income to his very likely put us over the limit.
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tallguy
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Feb 24, 2017 18:48:15 GMT -5
Post by tallguy on Feb 24, 2017 18:48:15 GMT -5
Yeah, I understand all that. I was assuming that you must have all of the information on TD's income and deductions to be able to give it to the accountant, so should be able to at least get pretty close on the income limit. Quick question: Was TD considered to have been covered by a retirement plan for the year because he (presumably) had one available in January? Or were you covered by one? If not, did he max out his Roth during the year or could he make a T-IRA contribution now which would possibly put you back under the limit and obviate the need to withdraw yours? If you are only a bit over the limit, a T-IRA deduction may put you back under if it is available. Or does he have any other options that he can still do at this point like creating a SEP-IRA that could put you under the limit? My understanding is that you can do that up to the due date of your return, but haven't looked into it.
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Peace77
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Feb 25, 2017 0:27:45 GMT -5
Post by Peace77 on Feb 25, 2017 0:27:45 GMT -5
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Mar 2, 2017 14:48:47 GMT -5
Post by The Walk of the Penguin Mich on Mar 2, 2017 14:48:47 GMT -5
Looks like I need to pull back all of my 2016 Roth. At least I'll be selling stocks at a high!
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