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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?

No. You'd now have an excess 2009 Roth contribution of $4,000. See Worksheet 2-2 on page 63 of Pub 590. Note that you first apply the income phaseout to the $5,000 limit, then subtract your traditional IRA contributions to reach your allowable Roth contribution.

My total contribution allowed for 2010 would then be $3000, still, would it not?

No, now you'd be down to $1,000 for 2010 and, likely, another Roth overcontribution since you started with $4,000.

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?

Same process, just more calculations. But don't worry. Your custodian will calculate the earnings. You just have to tell them which contributions (the latest ones, I assume) you want recharacterized.

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

Stock is fine.

- How is this recharacterization reported on the tax return?

See the instructions for Form 8606. You'll need to report the nondeductible traditional contribution (the result of the recharacterization) in Part I, and the instructions tell you what kind of statement to attach regarding the recharacterization.

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