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Author: edyboom223 Big red star, 1000 posts Old School Fool Ticker Guide CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Re: Should I Convert? Date: 6/19/2011 4:43 PM
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Phil,

Thanks, I'll convert. Half of my contributions were made when I was working in the US. I made..let me think...3 years of contributions when I was in Korea not knowing that I couldn't.

Since I have a pro here, I guess I'll ask you what to do. I looked this up recently when I learned that I had a problem, and I didn't attempt to fix the problem yet. I will be in the US in 2 weeks, and I figured I could redeem the problem then.

Here is what I read and here is my plan. I guess you can tell me if it's good or bad! Here are my excessive contributions (made while in Korea with no US income).

2009 contribution - 5,000
2010 contribution - 5,000
2011 contribution - 5,000

Here is what I read:

To correct an excess contribution, an individual must remove the excess amount and any applicable income from the IRA by the owner's tax-filing deadline, which is generally April 15. But if you miss the April 15 deadline, you may still be able to make the correction, as individuals who file tax returns by April 15 receive an automatic six-month extension on the deadline for removing the excess amount. An excess contribution that is not removed by the deadline accrues a 6% penalty for every year it remains in the IRA.

Read more: http://www.investopedia.com/articles/retirement/04/033104.as...

If I understand this correctly, I can withdraw my 2011 contribution with no penalty.

I can withdraw my 2010 contribution with no penalty as long as I withdraw it by October 15, 2011 - 6 months after the April 15.

I will have to pay a penalty of $600 (6% * $5,000 * 2 years)...or will it count as $900 for 3 years on my 2009 contribution?

I know that I made a booboo. However, I am not worried about it. I've had great gains in MAKO, PANL, IMAX, MPEL, and more over the past few years. I may have to pay 6-900 in a penalty tax, but my gains far outweigh that penalty.

Anyways, does my interpretation of the law/plan sound ok? What would you recommend?

Also, is there any way that I can contribute to any kind of tax sheltered account while in Korea? Is it possible for me to contribute to an HSA? I don't think I can since I've read that you need a high deductible health plan to contribute to one of those, and I don't have one.

It wouldn't be a bad time for me to withdraw $15,000. I am planning on going back to school soon, and that will cost me $5,000. Gotta look at the positives!

As I am typing this, I came up with an evil scheme. While I am in Korea, I can't contribute to a Roth. If I do, the contribution must be removed by October 15 of the following year if I want to avoid a penalty.

THEORETICALLY speaking, check out this future scenario:

It is January 1, 2012. I am in Korea, and I see an explosive stock idea with a severely undervalued stock. I contribute $5,000 to my Roth when I shouldn't. I buy $5,000 in that stock, and I just wait. Before October 15 of 2013, I sell the stock and withdraw $5,000 from my Roth.

Essentially, I used the Roth to avoid paying potential capital gains taxes, and I withdrew in time to avoid any penalties. Is this legal? Would I have to pay any penalties?

Obviously, I realize the stock may go down. It may stay flat. It may go up. BUT could I put money in every year on January 1 and give a stock 20 months to move before I withdraw it while avoiding penalty?

I am not asking if this is the right thing to do ethically (I own shares of PM) or if there is any risk involved in terms of stock movement. I am asking if this would be legal and penalty free.

Well, this message is a mouthful!


Edyboom
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