Here's my situation. I opened a new Roth IRA on 4/15/99, contributing $2000 for tax year 1998. A few days later, I decided to make a 1999 contribution as well (might as well earn tax-free returns as long as I can, right?). So I now have a Roth IRA with $2000 from 1998, $2000 from 1999, plus interest earned from April until today.

Now the problem. My 1999 AGI is above the cap, so my 1999 Roth contribution is disallowed. How do I undo my 1999 contribution and what (if any) penalties will I owe?

Any help appreciated. My accountant doesn't know the exact procedure and I want to act before 12/31/99.

I now have a Roth IRA with $2000 from 1998, $2000 from 1999, plus interest earned from April until today.

Now the problem. My 1999 AGI is above the cap, so my 1999 Roth contribution is disallowed. How do I undo my 1999 contribution and what (if any) penalties will I owe?

Any help appreciated. My accountant doesn't know the exact procedure and I want to act before 12/31/99.

I have the same "problem". You might want to look at http://www.fairmark.com/rothira/undoing.htm . Your IRA custodian (and your accountant) should know how to handle this... however, I work with Fidelity and had to make several calls before they got it right.

I think you will need to remove half of your Roth account. You can recharacterize it to a traditional IRA account without tax or penalty, or withdraw it and pay tax and 10% early distribution penalty on the earnings (i.e. the amount you remove that's over $2000).

If you do nothing, the penalty is 6% of the disallowed contribution, per year. (And probably, the same tax and penalty mentioned above will still apply when you finally fix the problem.)

If you recharacterize before tax filing deadline plus extensions the 6% penalty will not apply. Be specific when you go to the custodian. Did yu completely miss the cap ($110,000 sinlge, $160,00 married filing jointly)? If not you only need to recharacterize the portion that is not eligible.