Retired with insufficient earned income

[Guest walt007]

I am retired and recently made accelerated $3500 contributions to my Roth IRA for 2003 and 2004. I have just realized that I will not have sufficient earned income to cover the 2003 contribution and know that I most probably won't have enough for 2004 also.

1) Can the contribution from a fund comprised of 2002 earned income be counted? Don't think so, but worth the ask.

2) Can I just remove the whole and/or excess Roth contributions. Because they were deposited into a money-market fund, there hasn't been any significant time for any appreciation.

[John G]

Replies:

(1) Not sure what you mean here. If by "Fund" you mean a mutual fund - there is no earned income. Earned income does not include: dividends, capital gains, real estate gains, gifts, tax returns, etc. Earned income for most people means income related to a paycheck, but can include certain consulting, self employment, and part time job income. For example, teenagers can qualify from earnings associated with a newspaper route, babysitting, or mowing lawns. Not that those kinds of jobs may be a fit for a retired person.... but some creative thinking may allow you to qualify for 2004.

(2) Over contribution is a common problem. IRA custodians have procedures for handling this and methods for calculating the earnings on the overage. Call you custodian (now is probably a lot better than later in tax season) and talk it over with them. You probably can get the adjustment made after you send them a letter.

PS: Don't forget that you spouses income can help you qualify, even if you are not working.