Periodically added money to my wife and my Roth IRA during 2003. I had contributed the max for each of us by the end of the year. Just visited with my CPA on taxes and he informed me that my income was too high to be eligible for contributing to a Roth IRA (due to the sale of a property). How do I handle this? The money is already in the account and the return did quite well last year. I'll call the firms that handle our accounts tomorrow, but I just thought someone on this board might have some advice. Thanks

First, double check what you accountant has said against IRS Pub 590.

This is a common problem, custodians have procedures for backing out the funds. More than likely they will send you a check for the contributions plus their estimate of the earnings on those contributions. It sounds like you can then turn around and make your contribution for 2004. You may need to draft a letter to your custodian. This is a busy time for custodians, so get started.

Alternatively, you may consider contributing to a traditional IRA instead. You may be eligible to claim a deduction for the traditional IRA contribution- even if you are not, you would still be funding your retirement nest egg. You may use the same assets/contribution as your traditional IRA contribution.

To treat the Roth IRA contribution as a traditional IRA contribution, you would need to recharacterizethe contribution. Your IRA custodian should have a special form to accomplish this transaction. Most will accept an ordinary letter of instructions from you. Check to be sure. The challenge with the recharacterization (if this contribution was made to a Roth IRA that includes assets from other contributions conversions etc) is that you may need to compute the earnings or loss on the contribution. This is because when you recharacterize a contribution, it is treated as if it was originally made to the account to which it is recharacterized. For instance, assume you contributed $3,000 and this amount earned $100 while it was in the Roth IRA---you must recharacterize $3,100 to your traditional IRA. If the $3,000 it lost $100, then you would recharacterize $2,900.
If the Roth IRA does not include any other assets other that the contribution, then you could do a full ( total account balance) recharacterization.

If you are lucky, you IRA custodian may assist you with the calculation. If not, and you need assistance with computing the earnings/loss on the amount you need to recharacterize see Recharacterizing Your IRA Contribution or Roth Conversion? Know How to Determine The Current Value

Good advice.

Thank you so much for the reply!!!

A post that was on this message thread was deleted because the advice given did not match the stated problem (calendar year 2003) and included suggestions for donations to specific organizations. This site is not a billboard for promoting personal points of view. Responses should be on-topic. Authors should have expertise on the relevant issue.