Feb 28

What happens if you exceed the income limits of a roth IRA after years of contributing to it? Can you convert it to traditional? how does this work with taxes?

4 comments so far...

  • v b Said on February 28th, 2010 at 11:38 am:

    I don’t think I understand your question.

    Where you contributing or rolling money over?

    If your income was too high to contribute, you have excess contributions that need to be removed before 10/15 the following year. If your income is too high to roll money over from a traditional IRA you either recharacterize it or treat it as excess contribtutions.

    Excess contributions that aren’t removed are subject to 6% excise tax for each year you have an excess. See form 5329.

  • ninasgramma Said on February 28th, 2010 at 12:15 pm:

    If you have exceeded the income limits to contribute to a Roth IRA, you can recharacterize the Roth IRA contribution you made (plus any earnings) to a traditional (nondeductible) IRA. Your financial institution will have the paperwork to do this.

    If you recharacterize your 2007 Roth IRA contributions and earnings to a traditional, no taxes will be owed. You will file Form 8606 to document the transaction.

  • moneyguy Said on February 28th, 2010 at 12:28 pm:

    I do believe the previous two posts erroneously thought you contributed in a year in which you exceeded the income limits. Your income in any given year does not in any way affect previous years of contributions.

    You would not under any circumstance want to convert a Roth IRA to a traditional IRA. You’ve already paid taxes on your Roth contributions, and there would be no advantage to converting to a traditional IRA.

    Simply, in any year when you have exceeded the income limits, you cannot make a Roth contribution for that period. All your previous contributions are safe, and should your income drop in the future, Roth limits rise, or you get married and suddenly find yourself eligible to contribute again, your Roth account will be ready willing and able to accept your further contributions.


  • Marc Said on April 14th, 2010 at 12:11 am:

    Moneyguy, sometimes you do not know that you will exceed the limit and make a contribution. For example this year we contributed to the current year (2010) IRA in February. In March we found out that because of a death in my wifes family we received some additional taxable income that may put us over the 167,000 dollar limit for this year.

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