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coachtom4,

You wrote, Joel, one word of warning with the advice below. It doesn't work if the person has any other tax deferred IRA money. The conversion of the basis to Roth is pro-rata on ALL IRA's so some of the conversion may be taxable if you also have some tax deferred IRA's.

You're right. And I actually have that dilemma myself. I've been thinking about resolving it this year by rolling my IRA into my 401(k). I need to act on rolling it into the 401(k) soon or I might miss out on the opportunity to make a back-door Roth IRA contribution for yet another year.

- Joel
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I make about 160k year and wife about 60k. I've been contributing to a ROTH 401k and a individual ROTH. I wasn't aware that at our income levels we can't contribute to a Roth.what happens to all the money I've been contributing? Will i be penalized? What shouuld i do? I've been above the income contributing level for about 3 years. Thanks

For the Roth 401(k), there is no income limitation.

For the Roth IRAs, you are penalized 6% per year for each year that the contribution remains in the account and you were ineligible. So, assuming you maxed out contributions for 2014, 2015 and 2016, you could have about a $4k penalty. You may be able to recharacterize into a non-deductible IRA to avoid some of the penalties. If you decide to pull the contributions out, you will have to pull the earnings out, too, and may have to pay early withdrawal penalties as well as income taxes on those, too. And then there's interest on the late payments.....


You should probably go to a tax professional to get things straightened out. Sooner rather than later.

AJ
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mstrlucky74,

You wrote, I've been contributing to a ROTH 401k and a individual ROTH. I wasn't aware that at our income levels we can't contribute to a Roth.

+1 for what aj485 said.

Also it IS possible for someone at a high income level to make a back-door Roth IRA contribution. However, it sounds like you were doing it wrong. You must first make an after-tax traditional IRA contribution and then have the provider convert that to a Roth account.

As long as you had no earnings on the original contribution, such a conversion is not a taxable event. It's report-able, just not taxable. There are some other potential ramification to using a back-door Roth IRA contribution; but none of it is meaningful if you don't withdraw the money until after you are 59 1/2.

Otherwise it kind of sounds like you metaphorically shot yourself in the foot by not doing research and/or not consulting a professional. Hopefully a professional can help you minimize the damage.

- Joel
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Joel, one word of warning with the advice below. It doesn't work if the person has any other tax deferred IRA money. The conversion of the basis to Roth is pro-rata on ALL IRA's so some of the conversion may be taxable if you also have some tax deferred IRA's.




"mstrlucky74,

You wrote, I've been contributing to a ROTH 401k and a individual ROTH. I wasn't aware that at our income levels we can't contribute to a Roth.

+1 for what aj485 said.

Also it IS possible for someone at a high income level to make a back-door Roth IRA contribution. However, it sounds like you were doing it wrong. You must first make an after-tax traditional IRA contribution and then have the provider convert that to a Roth account.

As long as you had no earnings on the original contribution, such a conversion is not a taxable event. It's report-able, just not taxable. There are some other potential ramification to using a back-door Roth IRA contribution; but none of it is meaningful if you don't withdraw the money until after you are 59 1/2.

Otherwise it kind of sounds like you metaphorically shot yourself in the foot by not doing research and/or not consulting a professional. Hopefully a professional can help you minimize the damage.

- Joel "
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coachtom4,

You wrote, Joel, one word of warning with the advice below. It doesn't work if the person has any other tax deferred IRA money. The conversion of the basis to Roth is pro-rata on ALL IRA's so some of the conversion may be taxable if you also have some tax deferred IRA's.

You're right. And I actually have that dilemma myself. I've been thinking about resolving it this year by rolling my IRA into my 401(k). I need to act on rolling it into the 401(k) soon or I might miss out on the opportunity to make a back-door Roth IRA contribution for yet another year.

- Joel
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