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Author: jerdenrk Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75828  
Subject: IRA nondeductible contribution ? Date: 3/16/2000 4:25 PM
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These people I know, (Really, it's NOT me, it's someone who wouldn't take my advice to start with) They contributed to a traditional IRA and now realize that their income is too high, so they want to pull it out of the traditional and put it into a ROTH.. The contibution was made this year. Can they do this? Are there any penalties since they have not filed yet or anything.
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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20151 of 75828
Subject: Re: IRA nondeductible contribution ? Date: 3/16/2000 5:31 PM
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jerdenrk: "These people I know, (Really, it's NOT me, it's someone who wouldn't take my advice to start with) They contributed to a traditional IRA and now realize that their income is too high, so they want to pull it out of the traditional and put it into a ROTH.. The contibution was made this year."

Someone may have misinformed you. As long as one has adequate earned income to support the contribution (or a spouse who does, in the case of a spousal IRA), one is entitled to make a contribution to a regular IRA; the only question that high income might affect, assuming coverage by a pension plan, is whether the contribution is deductible.

I will let the resident pros, who know much more than me, answer your specific questions of how best to resolve your issue.

Regards, JAFO



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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20153 of 75828
Subject: Re: IRA nondeductible contribution ? Date: 3/16/2000 5:54 PM
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Still, if they're eligible for a Roth, why not contribute to a Roth rather than a traditional nondeductible? A roth is nondeductible but withdrawals are tax-free. With a traditional non, earnings are taxed on withdrawal.

I've heard of something called "recharacterization" which sounds like what they're looking for, but I'll await the experts' advice.

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Author: jerdenrk Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20154 of 75828
Subject: Re: IRA nondeductible contribution ? Date: 3/16/2000 7:01 PM
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I was not clear, their income is too high for the contribution to be deductible. That is why they would like to change it to a Roth IRA.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20166 of 75828
Subject: Re: IRA nondeductible contribution ? Date: 3/17/2000 7:47 AM
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Greetings, Jerdenrk, and welcome. You wrote:

<<These people I know, (Really, it's NOT me, it's someone who wouldn't take my advice to start with) They contributed to a traditional IRA and now realize that their income is too high, so they want to pull it out of the traditional and put it into a ROTH.. The contibution was made this year. Can they do this? Are there any penalties since they have not filed yet or anything.>>

Basically, they have three choices. They may leave the money in the IRA as a nondeductible contribution. No later than April 17 they may withdraw the entire contribution and pay regular income taxes and a 10% penalty (if under age 59 1/2) on any gain. Or, and again no later than April 17, they may have the contribution recharacterized as one made to a Roth IRA and have everything transferred to a Roth. These details are spelled out in IRS Publication 590 (Individual Retirement Arrangements) available at http://www.irs.ustreas.gov/prod/forms_pubs/index.html.

Regards..Pixy

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20179 of 75828
Subject: Re: IRA nondeductible contribution ? Date: 3/17/2000 12:09 PM
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jrr7: "Still, if they're eligible for a Roth, why not contribute to a Roth rather than a traditional nondeductible? A roth is nondeductible but withdrawals are tax-free. With a traditional non, earnings are taxed on withdrawal."

Not sure if this was directed at me, but I agree; if the only choice is between non-deductible regular IRA and a Roth IRA, then the Roth IRA is a no-brainer decision. High incomes can disqualify one from eligibility for a Roth IRA. The point of my earlier post was that anyone with earned income (or the spouse of such person) can have a regular IRA; the only issue is deductibility. Depending upon investe style and temperament (sp?), one could make a case that a taxable investment account (with LTCG) might be bettter than a regular IRA funded with non-deductible dollars (pay taxes at regualr income tax rates when withdrawn).

"I've heard of something called "recharacterization" which sounds like what they're looking for, but I'll await the experts' advice."

I too have heard the same, but cannot discuss details adequately to respond.

Regards, JAFO
(posted before reading all responses)


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