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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121340  
Subject: Re: Excess Roth IRA contributions Date: 3/3/2004 12:01 AM
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(1) Have all the $3000 plus earnings returned to me, and pay the extra 10% tax on the earnings on top of the regular rate. Related question is: I contribute every month last year (DRIPing), and have dividends distributed from 2003 contributions and also from previous tax year distributions. How do I figure out my earnings?

The custodian has the IRS's Captain Marvel Magic Calculator and will handle this for you.

(2) Recharacterize it to a nondeductible Traditional IRA? Related question is: I am already planning on closing the particular brokerage account (that is the costodian for the $1200 Roth contribution in question) later this year. I also have other investments through them, but I generally don't like their selection of stocks. If I recharacterize the $1200 in this brokerage account, that means I have to open up another traditional IRA account with them, and there will be two separate fees for closing out and transferring IRA accounts when I want to switch. Is there something that is a transfer out and recharacterization procedure all combined in one? Note that I have 2003's and previous years' Roth contributions with this brokerage account. So it's more like recharacterizing part of the Roth account and transferring out the whole account. Is this going to be a nightmare?

The simplest approach would be to transfer the entire Roth then do the recharacterization when the new custodian has the account. Caution: Verify high in the food chain and in writing that you won't run into a problem with the new custodian.

The alternative would be to do the recharacterization as a rollover. Take the distribution from the old custodian, being sure to specify no withholding, roll that into a Roth at the new custodian, and immediately recharacterize.

(3) I am also planning on purchasing a house this year, so I also thought if I could use this excess Roth IRA withdrawal as the first-time home purchase funds. But I probably don't qualify because I made my frist Roth contribution for the tax year 2000?


You can withdraw all your contributions without tax or penalty and up to $10,000 in conversions or earnings without penalty. See the ordering rules in the Roth section of Pub 590.

Phil Marti
VITA Volunteer

P.S. You're right about your filing status, unless you had a dependent child in your home in 2003.

PM
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