Roth Income Limit

[Guest amber_fort]

I've already contributed some money to my 2007 Roth IRA. However, I just learned that I will be receiving much more income this year than I expected and I will be over the Roth IRA income limit to contribute. What do I do? I talked to my IRA custodian to see if I could move the money out and they said it would be considered a cash distribution and be subject to all the early withdrawal fees. Any suggestions would be greatly appreciated - as you can imagine it is difficult to search the web for answers to a question like this. Also - a bit more info - I maxed out my 2006 contribution last year, so applying the money to 2006 is not an option.

Thanks

[WDIK]

See page 62 of Publication 590.

(Especially "Withdrawal of excess contributions." and "Applying excess contributions.")

[Appleby]

Was the amount contributed to a type of fixed investment, such as a certificate-of-deposit? Just want to understand why the early withdrawal penalty would apply.

Another option would be to recharacterize the excess amount to a Traditional IRA. This would allow you to keep the amount as an IRA contribution, just in a different type of account.

[Guest amber_fort]

The money that I contributed is just sitting in cash right now. I will call my account administrator and see if I can recharacterise it - that sounds like a great idea. If not, I guess I will just have to suck it up and pay the 6% excise tax when I file next year.

Thanks for the feedback, all!

[Appleby]

You would pay the 6% excise tax only if the excess only if it is not removed from the Roth IRA by October 15 of next year .

If you decide not to recharacterize the amount to a Traditional IRA, removing the excess amount by the deadline, along with an NIA would correct the excess without penalty.

See post at http://benefitslink.com/boards/index.php?showtopic=35097