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Subject:  Re: Roth over-contribution question Date:  2/3/2010  6:16 PM
Author:  PeteOfOsos Number:  108897 of 130715

Hi Phil,
Thanks very much for the reply.

Bzzz! No, you contributed $5,000 for 2009. Since you're leaving it alone even though it was excess with respect to Roth income limits it still counts against your 2009 $5,000 total. The excess also counts against your 2010 contribution limit if you don't want another excess contribution penalty for 2010. Thus, if you don't fix this the total you can contribute, Roth and traditional combined, for 2009/10 is $8,000. See Part IV of Form 5329.

Okay, I see what you're saying but here's where I was coming from on this (please point out where I'm making a mistake here):
If I make another $2000 contribution to a traditional IRA, my 2009 contributions would be:
$5000 Roth IRA
$2000 Traditional IRA
This would mean the excess contribution would still be $2000, correct? So why couldn't I do this? My total contribution allowed for 2010 would then be $3000, still, would it not?

Now a question. Will you be eligible to make Roth contributions of at least $2,000 in 2010? If not, you're going to be back in this same mess a year from now. It might be a good idea to recharacterize the excess and keep that $120 working for you rather than Uncle Sugar, plus you'd be able to make a full $5,000 conribution for 2010.

Not sure. I'll probably be in about the same boat, so I figure I should be allowed at least $2000 Roth in 2010. But maybe not. It would be nice not to have to worry about it.
So, to recharacterize, you mean have my custodian transfer the excess contribution plus earnings to a traditional IRA? This would probably be a better option, but I have a couple more questions regarding this:
- I have a rollover IRA (from a 401k from an old employer) at the same custodian. Is a rollover IRA the same as a traditional IRA once its established? Can I just make the transfer to this account?

- To calculate the earnings, I've tried to find the calculation, but its seems to be based on the account value at the time of the contribution, and the account balance at the time of withdrawl. My contribution was made in regular $200 increments throughout the year. How are the earnings calculated?

- To make the transfer to traditional IRA, am I required to liquidate the holdings, or is transfer of stock allowed?

- How is this recharacterization reported on the tax return?

Thanks again, your help is much appreciated.

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