Missing From the IRS Website- 2008 Roth IRA Eligibility Phaseouts

12 Comment(s)

1. Elise | Mar 4, 2008 | Reply

   What happens if one over contributes to the Roth IRA and doesn’t realize it until after the April 15 of the following year? I did not know what my income would be for the year because of bonuses and foreign income (currency exchange). Should one take out the excess? Pros and cons? Any insight would be appreciated!!

2. CHM | Mar 4, 2008 | Reply

   Hello Elise,

   Thanks for dropping by.

   Since you didn’t realize it until after the filing deadline you have to pay a 6% excise tax on any excess contribution amount in the account. If you are eligible this year then you can include it as this years contribution and pay the 6% excise tax penalty for last year.

   If you still earn too much to qualify this year, then you need to take the money out, otherwise you will continue to pay 6% annually on the excess contribution you made.

3. Jackie | Mar 25, 2008 | Reply

   I’m spinning a question out of Elise’s question. I too, just learned of my ineligibility to contribute to a ROTH because all of my income is foreign earned. But during 2007 I contributed the max to a Janus account. Do I understand correctly that I have to pay 6% this year, *and every subsequent year* for that contribution???? Are there any other options? Many thanks for your response,

   Paranoid in Japan

4. CHM | Mar 25, 2008 | Reply

   Hey Jackie,

   Same thing applies for you, as did Elise. If your income falls below the Roth eligibility level this year, than you can attribute last years excess contribution towards this year and you’re ok.

   If you’re still ineligible for 2008, then you will continue to pay a 6% excise tax until you take the money out. Just call the broker that holds the Roth account to find out how to proceed with re-characterizing an excess Roth contribution.

5. Lady_slipper | Apr 14, 2008 | Reply

   I am in the same situation here. I filed my 2007 tax form last month. I mailed a form today signing up for a Roth IRA afraid of not making the April 15 deadline for 2007. I was advised that if I reside outside of the US I am eligible, but now I learn that my foreign earned income is not eligible. What if I could make an amendment to my 2007 tax form to show US earned income in the amount of the contribution (eg compensation for work done for a relative’s company). It would not be enough to owe taxes, but at least I might have qualifying income for 2007.

6. Elise | Apr 15, 2008 | Reply

   Hi again,

   Just a brief update on what I did, I am not 100% sure I am correct but wanted to put it out there for discussion.

   So I realized (late) that I was over the income limit for Roth IRA contributions for 2006 and 2007. I just recently filed my 2006 US taxes so didn’t realize what my income would be in US Dollars. And have not yet filed by 2007 tax return due to the automatic extention of being abroad.

   So I recharacterized my 2006 Roth IRA to a Traditional (non-deductible) IRA. And I moved the “excess contributions” for 2007 into 2008 (no penalty as I did it before April 15, 2008). Then contributed again to the Traditional (non-deductible) IRA for 2007 in the max amount (before April 15, 2008), in order to at least try to max out contributions each year.

   I also heard that in 2010 there will be a possibility of converting Traditional IRAs to Roth IRAs — do you know anymore about that? What does it mean? What are the pros and cons? What should one do now to take advantage of the situation later?

   Question 1 : Is there any way to lessen the effect of the currency exchange on my AGI or MAGI? It really seems like a punishment to work outside the US. Doesn’t sound very fair, right?

   Question 2: So I moved my Roth IRA contribution from 2007 to 2008. What happens if my income is over the limit again in 2008? Will I get penalized the 6% because the IRS will know it is a “movement” of the 2007 contribution OR will it be considered a simple 2008 contribution and I can withdraw whatever amount necessary next year by April 15, 2009 penalty-free? Obviously, I won’t know until 2008 year is over and I know my income PLUS the average currency exchange (which is out of my control). I am trying to actively utilize my employer’s options of tax-deferring my income into Employee-Sponsored Pension Plan or Time Account (which is converting money into time/vacation and is taxed on withdrawal at then-present value income). Is this a good idea?

   I know it’s a lot of questions and a weird situation, but it seems strange that a US citizen living and working abroad has to deal with so many issues, and still get the short end of the stick.

   I welcome any advice or discussion about this.

   Regards,
   Elise

7. CHM | Apr 24, 2008 | Reply

   Hey Elise,

   A bit confused by some of what you wrote but most of your answers regarding your Roth excess contributions are here on this thread.

   Click on any of my categories having to do with Roth Conversions and I’ve written a few good articles on what you need to know about converting in 2010, something I advocate most of the time.

   As far as a hedge against making your money in foreign dollars and then reporting in American dollars there’s not much you can do short of creating currency hedges (or buying Euros, or whatever currency you live in, as an investment to hedge conversion risk)

8. S | Jul 7, 2008 | Reply

   I have a roth Ira I opened this year and I make less than 50,000 but my husband makes 500,000 per yr.
   so since I guess that means I’m elegible and he’s not
   but then what if we decide to file jointly does that mean I have to cancel my roth ira, please help

9. Jim | Aug 20, 2008 | Reply

   I retired June 1 2007 from federal employment. In January 2008 I took a lumpsum withdrawal for 36K from my thrift plan. The Government withheld approximately 10K and I just did a brief analysis of my liability for 2008 and it is an additional 5k. My total income for 2008 will be approximately 94K; my question is can I contribute to a Roth IRA to reduce my tax liability?

10. Ken | Sep 17, 2008 | Reply

    I guess my question is kind of a spinoff of some of the others above. I started contributing to a Roth this year, but have realized now that my income is going to be too high to be eligible. What’s the best way to reverse the contribution so that it’s not reported as a contribution for this year?

    Thanks,
    Ken

11. Ken | Sep 17, 2008 | Reply

    As a follow up to my previous question…I haven’t been lucky enough to find an investment that made me any money this year, and so my contributions have shrunk. I know that normally you have to remove your contribution and any earnings attributable to it (I’ve been Googling and think I answered my first question - I can just take a withdrawl? Seems too easy!). What is the treatment for contributions that have lost money? Do I need to only take the contribution amount? Or can I take out less, since my investment has shrunk?

12. BYARD CHARLES | Nov 29, 2008 | Reply

    I AM 74 I WOULD LIKE TO OPEN AN ROTH IRA. WHAT ARE MY LIMITATIONS. MY INCOME IS LESS THAN 30.000 A YEAR. I AM WIDOWED ?

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