What do you do if you contributed to a mutual fund under a Roth IRA but find your income exceeded Roth lmts?

Answer 1

Transfer it to a regular IRA, adjusting for gain or loss on the money. This happened to me the second year or so and it was a huge pain because I traded in a lot of mutual funds and a few stocks. I calculated percentage return for the part of the year that I had the "illegal" money in the Roth, then added that percentage to the "illegal" money and transferred out that amount.
So assuming I had $3,000 in the account to start, contributed $3,000 illegally, and had a 10% gain after that date, I did this calculation:

3,000 + (50% x 6,000 x 10%)

In this example you'd transfer $3,300. Obviously in real life you won't have such even numbers.

I explained all this on an attachment and the IRS didn't question it.

Good luck,
Houyhnhnm

Answer 2

If you converted your traditional IRA to a Roth IRA, but were not eligible to do so, unless you recharacterize the amount you converted, your conversion will be treated as a taxable distribution from your traditional IRA that may be subject to additional tax, and will be treated as a regular contribution to your Roth IRA that may be subject to an excise tax if it is an excess contribution.

You may decide to recharacterize your Roth IRA conversion by transferring in a trustee–to–trustee transfer, the amount you converted (including net income allocable to that amount) back to a traditional IRA. You may do this prior to the due date, including extensions, for filing your tax return. Show the conversion on Form 8606. Refer to the Form 8606 Instructions for information on reporting recharacterizations.

For information on Roth IRA distributions, refer to Topic 428. For information regarding Roth IRAs, refer to Publication 590, Individual Retirement Arrangements.

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Answer 3

right it truly is one ingredient to keep in suggestions about the Roth IRA account. there is under no circumstances any tax on it the position as there is on your 401k. This will change into significant even as pondering your asset blend. earnings generating investments are taxed on the completed tax price as will be your 401k. subsequently it truly is wise to make investments a minimum of a few of your 401k in earnings generating sources--bonds, LPs, REITs. The earnings from each and each and every of those is taxed on the completed tax price besides. Now because the Roth IRA is under no circumstances taxed, it truly is likewise wise to placed those type of sources into the Roth IRA also. and also fairness investments. What you ignored to tutor are investments outdoors of those 2 autos. once you've some, they should be investments that is taxed on the capital features price--fairness investments. actual, except you're contained in the utmost tax bracket it truly is wise to have area of your fairness investments outdoors of a 401k. by technique of doing so your entire tax bill will be decreased, exceptionally if you're a lengthy time period investor. once you've the least hankering to make investments a number of you earnings gold and silver those actual should be interior of a Roth IRA. both are taxed as collectibles in the different case. yet another ingredient to think about in regard to the 401k is that in destiny years the tax price may actual be larger, per chance a lot larger, than it at the moment is. because you quite don't have any determination of putting non-mutual fund investments interior of a 401k except for per chance business enterprise inventory, it actual does make experience to make investments Roth IRA earnings business enterprise stocks quite than mutual money. yet be careful. it truly is amazingly tempting for most to take a position with their Roth IRA account exceptionally little while period trading which in the different case may be taxed on the completed tax price. that is an effective thanks to diminish that value of the Roth account. Be truly careful. make investments contained in the likes of MCD, WMT, JNJ, BDX, KO, and so on. or per chance ETP with its 8% dividend or PAA with its 7.5% dividend. and do not make investments it in fewer than 5 distinct businesses.