Do capital gains count toward the 150K limitation on contributing to a Roth IRA this year? For example, if I have 75K income plus 100K capital gains this year, am I ineligible to contribute to a Roth? If I've done so, can I recharacterize it back into a traditional IRA or can I recharacterize it into an ordinary investment if my capital gains, say 250K, have made me ineligible to contribute to a traditional IRA?
[[ Do capital gains count toward the 150K limitation on contributing to a Roth IRA this year? ]]Yup...they sure do. They are part of your Adjusted Gross Income, and as such may cause your AGI to exceed the maximum allowed to make a Roth IRA contribution.[[For example, if I have 75K income plus 100K capital gains this year, am I ineligible to contribute to a Roth?]]Yup...sorry.[[ If I've done so, can I recharacterize it back into a traditional IRA]]Sure you can. But you'll have to realize that your IRA will very possibly not be deductible. But remember that ANYBODY can have a regular IRA...regardless of income limits, regardless of pension plan affiliations, regardless of anything. The real question is: Is the IRA deductible? But you can certainly make the recharacterization to a regular IRA.[[ or can I recharacterize it into an ordinary investment]]No...there is no such thing. If you remove the funds from the Roth IRA, and move it to a "taxable" account, this is not a recharacterization at all. You would be subject to taxes and penalties on the earnings of the Roth IRA, but certainly not the original contributions.[[ if my capital gains, say 250K, have made me ineligible to contribute to a traditional IRA?]]Again, anybody can have a regular IRA...regardless of income. The only time the income come into play is when you want to make that regular IRA deductible.You can read more about the Roth IRA rules, along with the regular IRA deduction rules in the Taxes FAQ area (archives section). You might want to check it out.TMF TaxesRoyWant to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. There is still time available to do that tax planning (and tax saving) before the end of the year. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Pay special attention to the "archives" section. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.
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