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Author: XCgeoff Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Roth IRA overcontribution Date: 3/11/2006 4:54 PM
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Due to some unanticipated bonuses, our AGI ended up in the phaseout range and we overcontributed to our Roth IRA's for 2005. I filed my first return and have determined the amount of overcontribution for each of our Roth IRA's.

I've looked through IRS form 590 some, but the more I read it, the more I feel an urge to do very bad things to the people who wrote the tax code, but that's beside the point.

I think that I understand that one of my options is to recharacterize the overcontribution and associated gains into a non-deductible traditional IRA. Everything that I've found online dealing with non-deductible traditional IRA's basically say that they are a complicated tax situation and they don't really discuss them. Since I will have already paid taxes on the non-deductible IRA, how are gains treated and what is the benefit? The only idea I could come up with is that if you bought and sold stocks frequently and didn't qualify for long term capital gain treatment, you could shield the gains from short term taxes. That still doesn't say anything about how the gains/value of account is taxed when withdrawals are made. Are there any benefits to a non-deductible traditional IRA compared to a taxable account if holdings in the taxable account are held long enough to qualify for long term capital gains treatment?

My second question is can I just withdraw the overcontribution and associated gains since it is still before April 15? FWIW, in 2006 we will almost certainly be ineligible to contribute any money to a Roth IRA.
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