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Hi, I am very confused as to why my tax preparation software is telling me that I am subject to a 6% penalty for a Roth IRA contribution of $2000. My AGI in 2001 is definitely less than the AGI limit...I have looked on www.fool.com and elsewhere trying to figure this out, and I don't see how $2000 can be too much...I am eligible to open a Roth IRA, and $2000 < (total earned income - 401k contributions) as described below. This quote is from http://www.fool.com/money/allaboutiras/allaboutiras04.htm .

"An individual may make an annual nondeductible contribution to a Roth IRA that may not exceed the smaller of the maximum allowable annual IRA contribution or 100% of the individual's earned income for that year, minus the total of all contributions for that tax-year to all other individual retirement plans (other than Education IRAs) owned by that person."

Any help is greatly appreciated!
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Greetings, Practical1, and welcome. You asked:

Hi, I am very confused as to why my tax preparation software is telling me that I am subject to a 6% penalty for a Roth IRA contribution of $2000. My AGI in 2001 is definitely less than the AGI limit...I have looked on www.fool.com and elsewhere trying to figure this out, and I don't see how $2000 can be too much...I am eligible to open a Roth IRA, and $2000 < (total earned income - 401k contributions) as described below.

As long as your modified adjusted gross income is less than $150K when filing jointly or $95K when filing separately and at least $2K AND you have made no contribution to any other Roth or traditional IRA in 2001, then you may contribute the full $2K to the Roth IRA.

I suspect that your tax preparation software either thinks your AGI is too high or that you made another contribution to a different Roth or traditional IRA during the year. Double check your entries to ensure you haven't made an error during your inputs. If not, then call the software company's technical support to see what's going on.

Regards..Pixy
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Hi, I am very confused as to why my tax preparation software is telling me that I am subject to a 6% penalty for a Roth IRA contribution of $2000. My AGI in 2001 is definitely less than the AGI limit...

Besides what Pixy said, you also can't file married separately and contribute to a Roth. If you're absolutely positive you qualify (read IRS Publication 590 and be real sure), you can tell the program you did not make a Roth contribution and get the return completed. The only reason they ask if you contribute is to make sure you qualify and don't have a penalty. It isn't shown on your tax return (unless you don't qualify.)

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