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Author: bobblaw One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121313  
Subject: Roth eligibility Date: 12/22/1998 12:46 PM
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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?
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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7501 of 121313
Subject: Re: Roth eligibility Date: 12/22/1998 7:18 PM
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[[ 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.

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