JAMES PATRICK

If you look at Pub 590 on pages 53/54 you will see that your modified AGI must be less than $160,000 to contribute to a Roth IRA. To get your "modified" AGI you must add the foreign earned income exclusion, in your case $80,000, which will put you over the maximum $160k, so a Roth would not be allowed.

Yes.

You net all your Schedule C's to determine if you have a profit or a loss. So your profit would be $2000 less 1/2 of your SE tax, and that would be your maximum eligible contribution.

There will be no 10% penalty for early withdrawals. The 1099 will be coded 4 which indicates death of the original holder and that withdrawals are not penalized to the beneficiaries.

Redeposit it in your IRA and don't report on 1040 as it was listed as non-taxable.

Why not just leave the funds in the Roth. If you need them for the children's education there will be no tax or penalty on the contributions you made and only tax, no penalty, on the earnings if used for education. If money not needed for education than it is still in your Roth.

There is a website run by an individual named Joe Hurley which has info on 529 plans in all 50 states. He is mentioned on numerous boards as being very knowledeable and I believe he has written a book. the site is : savingforcollege.com

I guess I am missing something because when I look at Pub 590 p55 it mentions "taxable compensation" and I was under the impression that foreign earned income (2555) was not taxable.

I've had accounts with TD Waterhouse for years and have had dividends reinvested in both my Traditional and Roth accounts, as well as a taxable account. They have handled it without any major problems. Even some EFT's which pay monthly, $2.00 or $2,000.00, didn't make any difference.

Since it appears that herb contributed to an IRA when he had no earned income the excess contribution had to be withdrawn by the due date of the year in which the contribution was made. I am assuming the contribution was over $2000. If you look at page 48 in Pub 590 you will see that ALL the withdrawal should be included as gross income. It has always been my reading of this section that this was the IRS way of letting individuals who tried to "game" the system by overcontributing or by making ineligible conversions that the penalty was going to be more than 6% a year. In classes I have taught on IRA's I have always warned against this and have been suprised others haven't spoken about the penalties. If you think about it there is a logic to this position ( I know, I know -- logic --taxes--???) if the contribution/conversion was ineligible than there is NO basis and withdrawals should therefore be taxable.

If you converted an IRA to a Roth in 2003 the correct code in box 7 is 2. That means there is no 10% penalty. If you have a different code than you did't do a conversion.

Since you paid taxes when you converted, the funds are not taxed when you take a distribution. As the conversion took place over 5 years ago there is also NO 10% penalty, and as you had a loss and therefore did not withdraw any earnings there is no tax or penalty on them. You may have the ability to deduct this loss on Schedule A if it was the only Roth you had and if you itemize. Chances are pretty slim it would be worth your while.

The "I" in IRA is for individual, so you both can contribute $3000 to your own Roth, unless you or spouse are over 50, then it is $3500.

I see it as a valid contribution of $180 and an excess of $2820.

My opinion,just that, is that if you do this as a business or trade and pay S/E taxes than it is OK for IRA purposes. If a one time deal, no S/E tax, no IRA.

The MRD I am referring to is the amount you are required to withdraw each year. The small amount I referred to was in response to you saying you wanted to keep conversions below a certain amount($32k) to avoid paying tax on your Social security benefits. Go to www.fairmark.com and read the info they have on Roths.

I am assuming all the $9,000 was from contributions so there would be no penalty.

It does not matter if you open an account with a new custodian. To take a loss on a Roth you must close out ALL your Roth accounts. So if you make a contribution to your 2003 Roth (even though it is 2004) you have not closed all your Roth accounts, and therefore should not be able to take the loss. I believe you should only contribute to a 2004 Roth.

When you become 70 1/2 you can continue to convert small portions of your IRA to a ROTH, just not the MRD portion.

You can withdraw the contributions at any time without tax or penalty, it is conversions and earnings that may have restrictions.

If he adds a contribution for 2003 to the account has he really "closed" the Roth IRA which gives him the ability to take the loss?

I probably don't understand a few things in your post. When did you make the contribution to the Roth 2002 or 2003 or both? How much? Who did your taxes for 2002 and did you tell them you opened a Roth? The worst case scenario that I see at this point is that you pay a 6% penalty on 2002 contributions and if you had earnings will have to pay taxes and 10% penalty on them. Any 2003 contributions can be withdrawn without penalty by 4/15/04 but should be pulled out ASAP. If he left that message on your machine I would really question his judgement. There was NO emergency for you to do something THAT moment and he could have just said he would like to discuss certain aspects of your account as the account rep. If he actually spoke to you and didn't tell you what was necessary to correct the situation, then not only is his judgement suspect, so is his knowledge.

The holder has NO idea on whether or not an individual would owe that penlty and does not have the authority do so.

I don't know which state you are reffering to and don't know why they would take out taxes. Abandoned property is claimed by the state when the account owner has been "lost" by the custodian and they hold the funds to "insure" they are NOT taken by unethical individuals or institutions. When the original owner appears to collect their monies the state generally reduces the amount of your funds by any advertising expenses which were incurred to "locate" you. I don't see any reason for taxes because this is a return of your Principal, income taxes would only be due on any interest you are paid for the time the funds were held (and added to your balance). It has been over 15 years since I dealt with A/P from New York but doubt the rules have changed that much.

Money you withdraw in 2003 will be deducted from IRA(retirement etc) contributions that you make in 2003, 2004 and 2005. So if you take $500 out this year it will be "deducted" from contributions eligible for the credit that you AND your spouse make over the next 3 years. Purpose was to stop what you are proposing as well as to limit retirees(my supposition). Look at the 8880 form to see what I mean.