Message Font: Serif | Sans-Serif
No. of Recommendations: 0
<< I just learned that the $2000 Roth contribution I made for 1999 is invalid because of my 1999 AGI. This $2000 is now worth $3200 and is part of an account at a mutual fund that also holds my 1998 contribution. If I remove this $3200 from the account, I know I must report the $1200 earnings as regular income. But, is there any penalty? >>

You would pay premature distribution penalty on the earnings if you're under 59 1/2.

I think a better choice is to "recharacterize" the contribution and earnings as a traditional IRA contribution. That way you can leave it all under the IRA umbrella and pay no tax currently on the earnings. See Form 8606 and its separate instructions. There's also a lot of information about recharacterizations in the FAQ.

Phil Marti
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.