excess contributions into a Roth IRA - do you have to take them out in

[Guest Erwin G]

I made a $2000 Roth Contribution this year for Tax year 1999, and an additional $2000 for tax year 2000. I have recently discovered that I will be above the allowable income limits for contributing, and will therefore have to take $2000 out of my account for Tax year 2000.

With the $4000, I bought 80 shares of a stock that is now worth under $2000. Can I transfer those shares out of my Roth, or do I have to sell them first, and transfer cash? If I can transfer stock, how many of the shares can I transfer (what part needs to add up to $2000, my cost basis, or what they are worth now?) Will I be able to take advantage of the losses for tax purposes? Finally I have some other losses from stock that I bought several years ago in my Roth account. Can I transfer those shares to satisfy the excess contribution even though I bought them several years ago, and if so, can I take advantage of those losses.

Any help is appreciated.

[JAMES PATRICK]

You mention that you have other losses in you Roth from prior years, do you have ONE account or different accounts?

If all of this is in one account I don't believe you can "pick and choose" what to withdraw as you seem to indicate you would like to.

When did you realize you could not contribute to a 1999 Roth?

[Guest Erwin G]

I apologize for the confusion. My 1999 Roth contribution is fine. It is my 2000 Roth contribution that is in excess. I realized it several weeks ago, when I lost eligibility to contribute to a Roth for income reasons.

I do have my Roth contributions in one account, and the only action I have taken since depositing my contribution was the buying of those 80 shares. My main questions would be 1) Can I remove the excess by moving those shares out of the Roth account, and into a regular brokerage account, and 2) How do I calculate the amount to move. Is it based on what the stock is worth today, or is it based on what it was worth when I bought it? Thanks for the quick response to my first posting.

[JAMES PATRICK]

Under new rules for contributions after 12/31/99 you must determine the net income (loss) attributable to a contribution on the actual earnings and losses of the IRA during the time it held the contribution.

The formula that is suggested by a major tax prep company:

Net Income(loss) = contribution w/d * (adj closing balance- adj opening balance) / adj opening balance.

you can choose by $ amount not by specific assets acquired by those dollars.

These calculations should be known by the Brokerage but may not. I understand that the particulars are in Notice 2000-39, although I must admit ignorance on how to obtain this info. Perhaps BARRY PICKER or MARY KAY FOSS would know as they appear to very knowledgeable about these matters.

[BPickerCPA]

I have an article on my web site on Notice 2000-39 that may be helpful.

Barry