Opened a Roth IRA in November 14, 2011 but shouldn’t have
We opened a 2011 spousal Roth IRA for my wife on November 14, 2011, but we’ve had an unusual year and it looks like she wasn’t eligible to open an IRA based upon our high AGI for 2011. We made a large withdrawal from my TIRA’s in order to buy a house in 2011. Our AGI was $227,000 ($7000 in income that I earned, $6,000 in Savings Bond interest and $214,000 in TIRA normal distributions).
We bought the new house in January 2011 and finally sold our old house in October 2011.
Can the Roth IRA be reversed prior to April 17, 2012? Are we ineligible for either a TIRA or a Roth IRA?
Thanks,
Bill
Permalink Submitted by Alan Spross on Wed, 2012-01-18 04:14
She is eligible for a TIRA contribution, but it will not be deductible if you were covered by a retirement plan at work (eg 401k, SEP IRA if self employed etc). With your large tax bill you probably are not interested in a non deductible TIRA contribution, but if you are the contribution can be recharacterized from a Roth contribution to a TIRA contribution by completing the custodian’s forms to do so.
If you cannot deduct it and do not want the contribution, just ask to have it returned as an excess 2011 Roth contribution. It will be returned and any earnings on the contribution will be taxable and subject to penalty if she is under 59.5.
Hope you are over 59.5 yourself, or you are facing a 10% penalty on the large TIRA distribution. Since you described the distribution as “normal”, that suggests you are over 59.5 and no penalty. Be sure the 1099R shows code 7 if that is the case.
Permalink Submitted by Bill Briner on Wed, 2012-01-18 04:50
Alan,
We both are over 59 1/2. Doesn’t our high AGI in 2011 prevent us from recharacterizing it as a deductible TIRA?
Permalink Submitted by Bill Briner on Wed, 2012-01-18 04:53
We no longer have a 401(k) – after retiring from my previous employee it was converted to an IRA and the 401(k) was closed.
Permalink Submitted by Bill Briner on Wed, 2012-01-18 05:09
We no longer have a 401(k) – after retiring from my previous employer it was converted to an IRA and the 401(k) was closed.
Permalink Submitted by Alan Spross on Wed, 2012-01-18 20:30
As long as neither of you is covered by a retirement plan at work, then you can deduct her TIRA contribution regardless of income. Note that she also cannot have reached 70.5 in the year the contribution is for to make any TIRA contribution.
Permalink Submitted by Bill Briner on Wed, 2012-01-18 22:29
Thanks Alan,
She is 60 years old, so that’s the option we’ll use (i.e., recharacterize the Roth to a TIRA prior to submitting our 2011 income tax return).
You know this subject forwards and backwards!