loss of value

[Guest gonebust]

I've had a roth since 97 and I've put in the max for each year. This year I made my 3500 contribution in Jan and now have to withdraw it as I've made over the $95 K limit. Problem is my total value of my account is down to $3300. Since I've contributed $11,000 for the other years in which my income qualified, is there any way to save this account? I've made a lot of bad investment decisions, obvously.

[John G]

It is sad to hear your tale of woe, but you are not alone in facing this problem. It sounds like you invested narrowly in techs or telecoms as a broad based portfolio or mutual fund would not be down so much for that time period. I know it is little consolation, but if you consider the 8k as tuition and you learned from your investing decisions then something of value can come from the past few years. Even if you are 50+, you probably have many decades of investing as you don't burn off all retirement money the year you retire.

More specific to your question about the loss and your options, the following references to earlier discussions of this issue should give you some guidance:

http://benefitslink.com/boards/index.php?showtopic=12458

http://benefitslink.com/boards/index.php?showtopic=17047

http://benefitslink.com/boards/index.php?showtopic=11989

http://benefitslink.com/boards/index.php?showtopic=8252

No magic bullets. The "solution" is often as disagreable as cod liver oil. I highly suggest that you consider an index fund or a very broadly based stock fund for you Roth. This will give you market performance and a little more stability on annual returns. Yes, I know market performance has been awful for almost three years. A down cycle that long is a very rare event. Good years normally outnumber bad years anywhere from 5:1 to 8:1. I would expect the next few years to be better than average for the stockmarket... capitalism is a very compelling force in the world and growth and profits will again be solid.

[BPickerCPA]

When you have an excess contribution, you have to compute the "applicable income". In your case the income is negative, so the amount you have to withdraw is substantially less than the $3,500 you put in. You need not, and in fact should not, empty the account.

You should also consider recharacterizing the contribution as a traditional IRA contribution, rather than withdrawing it.