ruben wrote:
- quote -

Well, you forced me to go and look up the rules. I stand
corrected. Even if the amount with earnings exceeds the
annual contribution limitation, you can recharacterize the
whole amount.

You wind up having an IRA contribution of $4000 with $400 of
earnings.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

A.G. Kalman wrote:
- quote -

Thanks for the replies. I have found some information that
seems to indicate that removing the $400 net income
attributable and paying a penalty is not necessary, please
comment:

http://www.complianceheadquarters.co...es/4_1_05.html

****

Recharacterize by the Due Date

An ineligible contribution that results in an excess
contribution to one type of IRA may not be an ineligible
contribution to the other type. IRC Section 408A(d)(6) and
Treasury Regulation 1.408A-5 permit an IRA owner to
recharacterize all or a portion of a regular traditional IRA
contribution (plus net income attributable) as a regular
Roth IRA contribution (or vice versa).

By recharacterizing an excess contribution, an IRA owner can
avoid the 6 percent penalty tax and retain all or a portion
of his/her retirement savings. However, to recharacterize an
IRA contribution, an IRA owner must be eligible for the
other type of IRA contribution.

An IRA owner must recharacterize his/her IRA contribution by
the due date of his/her federal income tax return (plus
extensions). The same extensions of the tax return due date
are available for recharacterization as for removal of an
excess contribution.

Example

Jean, age 41, is single with compensation normally ranging
from $70,000 to $80,000 each year. She is not eligible to
deduct a traditional IRA contribution because of her income
and her active participation in a 401(k) plan, so she
contributed $3,000 to a Roth IRA in 2004.

However, Jean received a late-year bonus in 2004 that
increased her MAGI to $120,000. This increase made her
ineligible for any Roth IRA contribution.

Jean can recharacterize her excess Roth IRA contribution
(plus net income attributable) as a nondeductible
traditional IRA contribution by the due date (plus
extensions) of her federal income tax return, avoid the 6
percent penalty tax on the excess Roth IRA contribution, and
preserve the tax-deferred earnings on her retirement
contribution in a traditional IRA.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

ruben wrote:

- quote -

Since you do not qualify to make any Roth IRA contributions,
everything must come out of the account. In your situation
(prior to your tax return due date) it is a simple matter to
contact the IRA custodian and have them "rename" the account
to a traditional IRA with them. In other words, have them
treat the contribution as if it was made to a traditional
IRA instead of a Roth IRA.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

ruben wrote:

- quote -

No, you can't leave anything behind. The rules regarding the
treatment of excess contributions without any penalties only
apply if you remove the excess AND the earnings.

You can recharacterize $4000 to an IRA. This makes the
transaction an annual contribution to an IRA. If you also
transferred the $400 you would have an excess contribution
of $400 to your IRA.

You need to withdraw the $400 from the Roth in order to
conform to the rules. It is taxable income and subject to
the 10% early withdrawal penalty as I assume you are under
age 50 or otherwise you could recharacterize the whole
shebang.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

ruben wrote:

- quote -

No, you can't leave anything behind. The rules regarding the
treatment of excess contributions without any penalties only
apply if you remove the excess AND the earnings.

You can recharacterize $4000 to an IRA. This makes the
transaction an annual contribution to an IRA. If you also
transferred the $400 you would have an excess contribution
of $400 to your IRA.

You need to withdraw the $400 from the Roth in order to
conform to the rules. It is taxable income and subject to
the 10% early withdrawal penalty as I assume you are under
age 50 or otherwise you could recharacterize the whole
shebang.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

On February 28, 2005 (last year) I made a deposit into my
Roth IRA in the amount of $4000. I have since discovered
that I was not eligible to make a Roth contribution due to
the income restriction. I understand that what I need to do
is re-characterize that amount and its earnings into a
Traditional IRA, for which I am eligible (I will have to
establish one altogether). I have a positive return on this
deposit into my Roth last year on the order of about $400.
Is there a problem with the fact that I will be making a
Traditional IRA deposit for that year in excess of the $4000
limitation on this type of IRA (recharacterizing $4000 +
$400)? Can I just leave the earnings behind and just
recharacterize the $4000?

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >