ROTH IRA After Tax Contributions

[boblink]

Hi, I am 63 years old and earn about $25,000 which I pay Social Security, Medicare, unemployment, state,..... taxes on, leaving me with a net (after tax) income of about $18,000.
I would like to contribute $15,000 of the (after Tax Income) to a ROTH IRA and would appreciate if you can please advise me if this is allowable and if not, is their another option that would allow me to do this?
Thank you,
Bob

 

[FlyingRon]

Nope, the Roth is capped at $6000 in your situation. Note you must wait five years for a qualified distribution from the plan.

Absent some other retirement plan in place (401(k), 403(b), ...) I don't know of any way to contibute to a tax-deferred plan. A retirement planner can look into whether something like tax free munis may be a good option for you for the money outside the Roth.

 

[boblink]

Thanks for getting back to me Ron, it appears that I am in deep doo-doo.
I have a non working spouse and we both have Traditional IRAs and ROTH IRAs.,
Any suggestions of the best way to dig myself out of this (IRS) hole?
Thanks,
Bob

 

[FlyingRon]

Are you saying you already put the money into the account? It will need to be corrected and any interest on the money while it is in there will obviously need to be taxed, but if we're talking about contributions made in 2010 you've not got too big of a deal, but you should probably consult a tax person to make sure it's done right.

 

[tranquility]

Withdraw it before April 15. You should only get taxed on what it earned.

 

[boblink]

Withdraw it before April 15. You should only get taxed on what it earned.

Thank you for your help guys,
Let me recap the situation, we are both >50 and have filed joint returns for the years that my wife started working part-time (2006 to date).
My wife has contributed about 90% of her net income into her ROTH IRA account (which was done on MY advice) so she (we) have made excess contributions to her ROTH IRA for the past 4 years.
Rough numbers are that her average Gross Income was about $20,000 per year and she contributed about $10,000 per year to HER ROTH IRA.
I obviously can have her change the contributions rate for 2011 and we can recharacterize her 2010 contributions (as suggested) so the question is, what is the best way to handle this error (i.e. MY mistake) for 2006-09?
We both have Traditional IRAs and ROTH IRAs, my wife is working, I am not working and she has made EXCESS contributions to HER ROTH IRA (no contributions were made to my IRA or ROTH IRA) for the years 2006-2010
I would appreciate any help you can offer as well as anyone else who cares to join in, to help rectify this MESS that I created.
Thanks,
Bob

 

[davew128]

Hire a professional to amend the years in question ASAP. There is a 6% cumulative penalty for excess contributions (meaning 6% EACH AND EVERY YEAR) until the excess is removed. Frankly I am stunned the IRS hasn't already contacted you since Roth contributions ARE reported to the IRS.....although not in the same time frame as W-2/1099s are. My gross calculation means she will owe roughly $2,400 in penalties. I am unaware of any exception to the penalty.

And don't let your wife make any more financial decisions.

 

[anteater]

And don't let your wife make any more financial decisions.

Let's watch those sexist assumptions, dave.

My wife has contributed about 90% of her net income into her ROTH IRA account (which was done on MY advice) ...

 

[tranquility]

As Dave128 said, the penalty for over-contribution is severe and cumulative.

 

[boblink]

Thank you for your help guys, for information purposes, the advice / recommendations, for my wife to OVERcontribute / excess contribution from her earnings to her ROTH IRA account was made by ME therefore, I am going to try and fix (correct) this MESS which I believe will entail completing Form 5329.
Thanks,
Bob

 

[boblink]

Hello again guys, I asked my wife to check with her Human Resource office and they advised her that she had a 403b ROTH IRA which from everything that I can tell, appears that the contributions that she has made are "legal" (meet IRS regulation) and more importantly, the advice that I gave her was correct (although I was sweating bullets).
I apologize for the Chinese Fire-Drill and would like to thank you for your help as well as any additional comments / remarks, that you may have.
Bob

 

[FlyingRon]

Hello again guys, I asked my wife to check with her Human Resource office and they advised her that she had a 403b ROTH IRA which from everything that I can tell, appears that the contributions that she has made are "legal" (meet IRS regulation) and more importantly, the advice that I gave her was correct (although I was sweating bullets).
I apologize for the Chinese Fire-Drill and would like to thank you for your help as well as any additional comments / remarks, that you may have.
Bob

Yes, I alluded to this sort of provision in my first response. Roth options on 403(b) have different limits.

 

[davew128]

There is no such thing as a 403(b) Roth IRA. A 403(b) is a 403(b) and not an IRA. You have a Roth 403(b) and nothing else.

 

[FlyingRon]

The IRS term is "Designated Roth Account" which is part of your 403(b).
You can contribute up to $22,000 (since you're over 50) an allocate it between the pre-tax (or non-Roth) and the Roth part as you see fit.

If what you're talking about is the Roth Account in the 403(b) you are fine.
If you're talking about a separate Roth IRA, you're in trouble.

 

[boblink]

Thank you for your help guys and I apologize for the confusion, I don't have access to the account so I can't tell for sure but I asked my wife to check with her Human Resources Department and they advised her that the account is a 403b and since she has contributed <$22,000, I believe that she is OK.
I will ask her to get a copy of her latest statement so I can "see" exactly what it is (what type of account she has).
Thank you for ALL your help guys,
Bob