Self-imposed limits on ROTH contributions & 2 ROTHs for Married Couple?

[Guest BobT]

I just opened a ROTH IRA and had two basic questions that I cannot find answers to:

1. What mechanism exists to restrict me from contributing to the ROTH if I'm over the 150,000 limit for a Married Couple? e.g.: I've just made a $3000 contribution for 2004 - what happens if my income this year exceeds the allowable limit? Did I do wrong to make the contribution this early? Is that why the deadline for contributions is the same as the tax filing deadline?

2. Can a married couple with combined income less than the $150,000 limit open TWO ROTH accounts...one in each name?

Thanks!

[John G]

1. IRS code on IRAs specifies the income limits. Sure you can contribute early. It helps your investment grow because early contributions means the money has more time within the shelter to grow. If your income goes past the threshold, you can consider trying to take tax losses or asking an employer to defer a bonus to allow you to remain eligible. There are a number of very specific strategies beyond these two that might apply. But... if a year from now you realize you can not qualify for 2004, then you work with your custodian to back out the contribution... this happens often and they are likely to have procedures they will use.

2. Yes, a married couple filing a joint return can open two Roths for 3,000 each if they qualify. The earned income can come from either person. Each Roth would be an independent account in the name of the tax payer... there are no joint Roths.

Did you contribute for 2003? If you have earned income and qualify by total income, you might want to start with a 2003 contribution. You have just over two weeks left to do this.

[Appleby]

If you later find that you are not eligible for the Roth IRA contribution, you may correct by doing either of the following:

----Removing it as a “return of excess contribution”. This means you no longer have a contribution for the year

----Recharacterizing it to a traditional IRA contribution. You still have the contribution, just to a different type of IRA

As John said, the IRA custodian will have their forms and procedures for doing either.