In the year 2000 I made a $2000 contribution to my Roth IRA. Only at tax time did I realize this would be classified as an an "excess contribution". Unfortunately, I dragged my feet and have still not removed the contribution. I want to remove it now but the value of the investment has declined substantially to the the point where there is not $2000 to withdraw.

In a non-retirement investment I would simply sell the fund and take a capital loss. The big question is how do I undo the effects of my original $2000 contribution when there is no longer $2000 in the account. How much do I withdraw? Can I take a capital loss? How do I deal with this on my 2002 tax return?

Adding to the complexity is the fact that the excess contribution was made to a Roth IRA that already has money from a prior year. How do I seperate the excess contribution from the original contributions when the whole thing has gone down the tubes.

Your help is appreciated.

Allan

First, you need to consult with an accountant or tax preparer to confirm that your conclusion is correct. The professional should be able to do some calculations to work out the excess you must withdraw and the various penalties you owe. Also, some custodians can help you unravel this problem and have the computer systems to track all the contributions and results. Because of the co-mingled assets from different years, you have a messy problem and you need to use local resources to solve it.

You probably will need to file an extension for your 2002 taxes as getting this resolved in the remaining few days will be hard. Once past April, you will find less stressed out staff with which to communicate.

Good luck.