Already contributed for '08 but will exceed income to be eligible?

[Guest jalkelly]

I contributed the 5k max in January for 2008. I have been fortunate at work and will make too much to be eligilbe to contribute to a ROTH for '08.

What happens now?

I have the IRA with Fidelity. Do I need to notify them? If so when? What happens to the gains I have made on the money I contributed? I assume I should contact Fidelity to get specifics but any insight here would be great!

Thanks!!!

[masteff]

Yes, Fidelity is the place to start. Call them and they'll have a specialist who will be able to walk you thru it.

You can look in IRS Publication 590: http://www.irs.gov/pub/irs-pdf/p590.pdf

On page 64 it explains the choices are to withdraw the excess or to apply it forward to the next year (assuming you don't exceed the limit again).

[Guest jalkelly]

Yes, Fidelity is the place to start. Call them and they'll have a specialist who will be able to walk you thru it.

You can look in IRS Publication 590: http://www.irs.gov/pub/irs-pdf/p590.pdf

On page 64 it explains the choices are to withdraw the excess or to apply it forward to the next year (assuming you don't exceed the limit again).

Thanks for the reply, on page 64 it says "any contribution that is withdrawn before the due date for fililng your tax return for the year is treated as an amount not contributed." Does this mean that if I withdraw the 5k it's like I never contributed it in the first place? Thanks!

[jevd]

Yes, Fidelity is the place to start. Call them and they'll have a specialist who will be able to walk you thru it.

You can look in IRS Publication 590: http://www.irs.gov/pub/irs-pdf/p590.pdf

On page 64 it explains the choices are to withdraw the excess or to apply it forward to the next year (assuming you don't exceed the limit again).

Thanks for the reply, on page 64 it says "any contribution that is withdrawn before the due date for fililng your tax return for the year is treated as an amount not contributed." Does this mean that if I withdraw the 5k it's like I never contributed it in the first place? Thanks!

Yes. But be sure the withdrawal includes the net of earnings/loss.

[John G]

Some folks have a modest amount of control over their taxable income. You might be able to convince your employer to pay to a bonus in 2009 instead of year end. You might be able to switch away from dividend paying stocks. If you start a business and have initial write-offs - either as a Sub S or via schedule C on your tax return, it might offset some of your income.

If you own a business or file a schedule C, you have non-Roth retirement options to consider. Your accountant can give you an idea of your options.

Perhaps some day, Congress will decide that Roth income limits can be higher. It seems unfair to me that folks with higher incomes often have very generous options (setting aside more than 5K) while folks in the middle may have fewer options.

[Appleby]

You could consider recharacterizing the contribution to a traditional IRA. Depending your active participant status and ( if you are an active participant or married to an active participant), your MAGI, you may be able to deduct the contribution. If you are not eligible to deduct the contribution, you could still treat it as a nondeductible contribution to the traditional IRA.