how to unwind contributions when AGI too high?

[Guest robm26]

Help!

I started a Roth IRA and contributed $2000 per year for 1998 and 1999. I am doing my 1999 tax return and I discover our married AGI falls in the 150-160k range. Turbotax tells me that I overpaid by $520. I have made a few trades and my holdings have appreciated, making it difficult to track where this $520 went. Assuming I can estimate its current value, can I withdraw it from my account without penalty in order to keep my Roth tax-free?

Thanks for any guidance.

Rob

[BPickerCPA]

You have two choices. One is to withdraw the excess contribution AND the applicable income. If you do that you will pay tax and 10% early withdrawal tax on the applicable income.

Second choice is to recharacterize the excess contribution AND the applicable income into a traditional IRA. This eliminates any immediate tax consequence.

In either case you have to compute the applicable income, which is done by a formula described in the regs. You may have to pay a knowledgeable pro to compute it for you.

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Barry Picker, CPA/PFS, CFP

New York, NY