De-funding ROTH question.

[Nika]

We were cutting it close this year, but with DH being asked to teach again this semester, I think we may just pushed over the eligibility line.

The problem is I already funded 2014 ROTH. What exactly will I need to do to de-fund it, and what will our penalties be?

[Petunia 100]

We were cutting it close this year, but with DH being asked to teach again this semester, I think we may just pushed over the eligibility line.

The problem is I already funded 2014 ROTH. What exactly will I need to do to de-fund it, and what will our penalties be?

Just inform your custodian you need to undo your 2014 contribution.

Get it done before the year ends and there is no penalty.

[scfr]

Straight from the IRS: "Withdrawal of excess contributions. For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made."

http://www.irs.gov/publications/p590/ch02.html#en_US_2013_publink1000231024

Going forward, you may want to wait to make contributions until you have completed your tax return. That's what I do.

[autoxer]

Can you look for ways to lower your MAGI, so that you stay under the income limits?

• increase deductible 401k contribution
• increase HSA contribution
• realize capital losses to offset income
• lowering self imployment income

If all that fails, in the future you can explore if a back door roth would work for you. Basically you fund a traditional but non-deductible ira and then convert it to a Roth. But, there are some tax consequences if you have other traditional ira funds.

[moneysma]

Going forward, you may want to wait to make contributions until you have completed your tax return. That's what I do.

This is what my wife and I do. She is commissioned based so we have no clue at the start of the year if we can invest in a ROTH or not. So we just save up the max amount allowed in an online savings account. Once the year comes close to the end and we figure everything out we either put the money in the ROTH or into a Traditional IRA then back-door it into a ROTH.

[BuckyBadger]

I'd just automatically back-door it every year. Then you don't have to worry about it.