I contributed $2000 to my Roth IRA on 1/1/2001 for the 2001 tax year. My wife changed jobs midyear and our income will exceed $160,000, therefore I must either recharacterize to a non deductible Traditional IRA or withdraw the contribution.
Question: The Roth is in a tech. mutual fund and the FMV at 12/31/2001 was $1200. What amount should I recharacterize or withdraw. If I withdraw $1200 can I deduct the $800 loss, as I would have to include any gain in income?

You recharacterize $2000. If you withdraw $1200 and close the account and it is the ONLY Roth you have, than you have an $800 loss reportable on Schedule A subject to 2% of AGI. It is the FMV on the day you withdraw NOT 12/31/2001.

So, to expand on mfox's situation:

At $160,000 neither he nor his wife can contribute to a Roth IRA...

1) Can he withdraw his contributions and his wife take the $120 excise tax hit?

2) If he has a bunch of stocks for his Roth IRA account, must he identify those stocks bought with the 2001 money and sell those, or can he pick whatever losers he wants (despite the tax year contribution that paid for those stocks)?

Assuming the $2000 contribution was made to an account that was opened for the 2001 contrib and no other transactions were added to it you have 2 options:

1. Close the account before 4/15/2002, when your tax return is due, and pay no taxes or penalties.

2. Recharacterize to a non-deductible.

Based on income over $160,000 you would not be able to use the $800 loss since it would be way below 2% of AGI, unless you had a lot of misc deductions and then phaseouts may kick in.


You can't "pick" as you seem to indicate (wish) karlg3.

mfox, kick me if I'm taking over your thread...Jim, thanks for your info...

If a married couple has a Roth IRA that they've paid into for a couple of years, and they don't want to close the entire Roth IRA account...but, this year they've made excess contributions 'cause their income is too high:

1) Can one spouse take the $120 hit on one Roth IRA (maybe made a goodly sum on their IRA) and the other spouse withdraw the contribution to the other Roth IRA (their investments stunk)?

2) If the contributions are withdrawn, the person must identify those stocks/funds/earning/etc which were paid for specifically by the 2001 contribution?

Thanks again, KG