use of notice 2000-32 ,excess contribution as a negative number. how

[Guest bobkat]

I started a new ROTH IRA on 1-3-2000 with a $2000.00 contribution.(I have other, separate ROTH IRA's that I started in prior years with other accounts). At the end of 2000 I found that I must modify my contribution since my MAGI is over 95k - being single and all. My calculations showed that I can have a maximum contribution of $1630.00.

I understand that I have an excess contribution of 370.00. On 12-31-00 the value of the ROTH IRA that I contributed to was only worth $1137.00. It even went down a little more since then. I read a message that explained about the new calculation method to use " notice2000-39 "and if I am understanding it correctly ( question ) then my net income for the ROTH IRA in question is a loss of ($863.00)

863 = ( 2000 x (( 1137-20000 / 2000 )

can I assume that the calculated loss of $863.00 for this ROTH offsets the $370.00 that I must adjust to satisfy the excess contribution. If this is correct then how do I report this or do I even have to ? do I need to have the trustee do anything ? I can't seem to find any examples the really explain the step by step details that one must do .

thanks in advance to anyone that

can help this poor weary tax payer.

[BPickerCPA]

I guess you can assume it, but if you do you'll be wrong.

[Guest bobkat]

i think i finally saw the light about 3:00 am this morning about the excess contribution and the net earnings on the excess contribution. barry, i thank you for adding that it would be wrong of me to offset the excess contribution with the negative earnings. if i am understanding correctly, i need to address the excess contribution by way of removal or recharacterization and if done by the april 16TH deadline then i owe no penality. i am a little confused on the forms that i need to file. again, my understanding is that if i don't recharacterize then no additional forms are to be filled out and i claim the excess contribution on form 1040 line 15a with no net income ( meaning zero ) on line 15b.

if i choose to recharacterize then i also need to include form 8606 with the $370 as a nondeductible ira for tax year 2000. thanks in advance to anyone that responds. even a little hint would be deeply appreciated.

[Guest bobkat]

after an all nighter i think i finally realize what i need to do. i still have a couple questions. i would like to thank barry for the information on his web site. it really helped me a lot.

i see i have a roth excess contribution of $370 for 2000. under the new calculation method ( notice 2000-39 ) i will have a net income loss on the excess contribution of $90.

question # 1 same question barry asked on his web site )

can i claim this loss of $90 ???

question # 2 similar question )

can i invest the $370 into a traditional ira without doing a recharacterization ? possibly withdrawing the $370 and adding $130 for tax year 2001 to purchase a $500 traditional ira. $370 for tax year 2000 and $170 for tax year 2001 .

it would then allow me to contribute $1,830 to a roth for 2001 and take full advantage of the allowable $2000 ira contribution for year 2000.

[BPickerCPA]

There is still no answer on the loss deductibility question.

The best bet is to move the $280 ($370 less $90) in a recharacterization to a traditional IRA. You cannot add any more money to the traditional IRA. This is actually considered a contribution of $370 to the traditional IRA. Keep that in mind when you file the 8606 to report basis in a non deductible IRA (I'm assuming it's not deductible. If it is the deduction is $370).

CAVEAT: I have NOT reviewed the computations. I've accepted all given numbers as correct.

[Guest bobkat]

barry, again my deepest thanks. i could not have done it without your help. the problem that i am having with the trustee is that i need to meet a minimum in order to open a traditional ira for the recharacterization. that's why i had the question about opening a new traditional ira with new tax year 2001 funds, along with using the tax year 2000 roth excess of $370 ( really 370-90) i'm trying to move the excess into another fund family that has a lower minimum ( $500 ). i was hoping that i can use the $370 from 2000 , recharacterize it to a traditional and add whatever $$$ amount needed using 2001 ira money so i can meet the minimum of $500. if my math was correct earlier, it may have been clear. $370 from 2000 & $130 from 2001 = $500 miminum.

since i fill out form 1040, its my understanding that i cannot claim the deduction of $90 as you pointed out, the net income claimed on line 15b will be zero with the total excess of $370 mentioned on line 15a. that i will also need to fill out 8606 for the non-deductable contribution.( you assumed correct ) if the characterization occurs.

the formula/figures that i used to calculate were:

(90)=370x((1510-2000)/2000)

370=excess contribution

2000=dollar amount that i opened the roth with on 1-3-2000

1510=dollar amount that the roth was worth on 12-31-2000

(90)=calculated net income that the $370 made ( loss )

(@ this rate i'll be in the poor house in no time )

[BPickerCPA]

If you want to put new money into the traditional IRA at this time, constituting a year 2001 contribution, that is perfectly OK.

[Guest bobkat]

barry, thanks again for your response. i'm really learning a lot about what not to assume. as far as my strategy is

concerned, it all but fell apart. i mentioned that i need to do a trustee-to-trustee transfer to several mutual fund

families and none of them make any sense to me. it don't sound like it is going to be easy to do the

recharacterization that i would like to do and time is running out. i've been reading about the penalities against the

ira/roth and i haven't found where you can't change your mind during a given tax year especially before you file

and/or reach april 16TH ( for this year ). the only information that is clear is your examples, barry, on your website.

the assumptions that i am going to make is that the answers to some of your examples are YES or at least a good

maybe.hopefully there is a little guidance for the weary.

my plan is to remove the $370 excess contribution by redesignating it to a 2001 roth contribution within the same

mutual fund along with any earnings. in this case the earnings are negative so i don't have to worry about any taxes

( least i think i don't ). secondly, i will open a traditional roth with another mutual fund family and use $370 from tax

year 2000 ( that i freed up by the redesignation of moving the excess from year 2000 to 2001 ) along with $130 from

tax year 2001 to meet their $500 minimum.

this will complete tax year 2000 maximum limit of $2000 and leave me with $1500 for additional ira contributions

being traditional or roth depending on my salary for tax year 2001.