Comments on: Traditional and Roth IRA Contribution Limits for 2009

By: Glen

Glen — Mon, 16 Nov 2009 16:43:24 +0000

I have two daughters whom I have have been advising to make maximum contributions to their Roth IRA s.One has been doing so each year until now. Her entire earning are unemployment benefit so she is not eligible this year.The other has made no contributions since she lives with her boy friend and has no income of her own.I realize if she married her boy friend she could make a contribution but that is not the case and not on the horizon. My question is: What can I do to set up a trust fund that would serve the same function as the Roth IRA s would have?.

By: Jeff Rose

Jeff Rose — Thu, 24 Sep 2009 14:06:13 +0000

@ SKN

Instead of attempting to explain, check out a post I did that walks you through the conversion process: http://www.goodfinancialcents.com/2010-traditional-ira-to-roth-ira-conversion-tax-rules/

Let me know if you have any other questions.

By: SKN

SKN — Thu, 24 Sep 2009 08:55:25 +0000

I currently have $11,000 in my traditional ira and am thinking of converting to a roth ira. Since I’ve already contributed $4,000 to my traditional which is deductible, does that net with the $11,000 I’m converting? So that at the end of the year, I’ll only have to pay taxes on $7,000? Is that how it works?

Thanks!

By: Bob Howard

Bob Howard — Fri, 11 Sep 2009 21:54:27 +0000

Are IRA distributions taxable this year–2009? I heard a rumor they arent because of the state of the economy.
Bob Howard

By: Scott

Scott — Fri, 21 Aug 2009 16:26:15 +0000

I just STOPPED contributing to my 401k at work and opened a Roth IRA on my own instead. I’m 43 and make $36,000/year. I contributed about $3000 to my 401k for 2009. How much can i contribute to my new Roth IRA for 2009? Does the 401k have anything to do with the limit?

By: SL

SL — Thu, 13 Aug 2009 14:38:20 +0000

I just realized that I made excess contributions to my IRA accounts for tax year 2008. I’m only allowed 5K but I contributed 4K to a traditional IRA account as well as 2K to Roth IRA account. What is the best way to correct this with minimum tax penalty?

Thanks,
SL

By: Marcus

Marcus — Thu, 30 Jul 2009 05:48:47 +0000

I am not sure if you answered this before but if I am contributing monthly to my roth ira and do well in my business this year (make 200K +), how do I recharacterize my roth ira (including the gains that I have already made this year) to an IRA that I might qualify for. I work with Fidelity. Would they have a form to transfer to a different account? How exactly is this taken care of?

Thanks,

Marcus

By: Jeff Rose

Jeff Rose — Mon, 27 Jul 2009 15:57:40 +0000

@ christy

If you convert in 2009, yes you will be subject to the same tax rate as your earned income for the year.

If your earned income does not exceed the Roth IRA phaseout limits, you can still contribute to a Roth IRA. The conversion will have no affect.

You can convert as little or as much as you want. There is no rule on this or any time limit.

I have some more information on the Roth IRA conversion here:

http://www.goodfinancialcents.com/2010-roth-ira-conversion-rules/ and http://www.goodfinancialcents.com/roth-ira-conversion-traditional-401k-2010/

The whole process can be tricky. Make sure you have a tax professional helping you every step of the way ;-)

By: christy

christy — Mon, 27 Jul 2009 07:53:26 +0000

I want to convert $20,000 from tradional IRA to ROTH IRA. I know I will have to pay taxes on the money. Will it be taxed at the same rate as my earned income for 2009 ? Will I still be able to
make a contribution to my ROTH IRA for 2009 ? Do I have to convert the whole amount or a little at a time ? Is there a time limit on converting from standard IRA to ROTH IRA ? thank you

By: Britt

Britt — Mon, 20 Jul 2009 20:00:16 +0000

@Sandra – I’ll try to answer each of your questions as you’ve asked them…

1. Yes. It’s okay to leave the funds you’ve already contributed to your Roth in your Roth IRA even though you now earn more than the Roth IRA income limits allow. The income limits are for making NEW contributions. So you can leave your Roth IRA funds alone to grow tax free forever!

2. The question of whether or not you should convert your Traditional IRA to a Roth is more of a personal question. Consult a tax advisor to find out what the advantages and disadvantages are for your particular situation. As for income limits, in 2010, all income limits for making a Roth IRA conversion disappear. So that should NOT be a problem.

3. There is no income limit for making contributions to a Roth 401k. Your contribution is treated under the same rules as a regular 401k contribution except that its made with after-tax funds (it’s not tax deductible). And, of course, your withdrawals in retirement are tax free.

Here’s what the IRS website states in regard to the Roth 401k:

“Do the same income restrictions that apply to Roth IRAs apply to designated Roth contributions?

No, there are no limits on an employee’s income in determining if he or she can make designated Roth contributions. Of course, the employee has to have salary from which to make any 401(k) or 403(b) deferrals.”

I hope this information helps.

By: Sandra

Sandra — Sat, 18 Jul 2009 23:59:15 +0000

I have funds in a Roth IRA from 2006-7 contributions (I made less than 100k ) but I made more than 120k (single) in 2008 and will in 2009, as well. I am not contributing to my Roth IRA any more but I do have a portion of my 401k deductions to a Roth IRA (which I’ve heard is okay as there are no income limits to contribute to a 401k Roth IRA?) Questions:

1. Is it okay that I leave the funds in the Roth IRA now that I make more than 120k?
2. Can/should I convert any of my traditional IRA funds to Roth IRA? Does the income limitation apply to conversions as well?
3. Is it okay for me to contribute to a 401k Roth IRA? What is the limit – if any? Is there really a difference on income limits on Roth IRA vs. 401k Roth IRA?

Thanks!

By: Britt

Britt — Tue, 14 Jul 2009 14:14:48 +0000

@Tom – Yes, both you and your wife (as long as she’s over 50 years old as well) can contribute the maximum of $6,000. The contributions can not be tax deductible if your MAGI is in excess of $176,000.
However, in 2010, the income limits on Roth IRA conversions disappear.

So next year, you can convert this year’s Traditional IRA to Roth IRA and realize the benefits of a Roth. However, please note that if you’ve made past tax deductible contributions to a Traditional IRA, those contributions will have a taxable impact on your conversion even if they aren’t a part of the conversion you undertake…

Why?

Since the IRS views your IRA as a single IRA (even though it may be spread across multiple separate financial accounts), it treats the contributions on a partial conversion as a percentage of the whole. So if 50% of your contributions were tax deductible and the rest weren’t, your conversion will be taxed accordingly, even if the converted funds were non-tax deductible themselves.

By: tom

tom — Sun, 28 Jun 2009 12:40:11 +0000

My wife has no income. We’re both over 55, filing jointly with income well in excess of the $166,000 IRS IRA limits. I can contribute $6,000 to my conventional IRA but can I contribute the same to hers?

By: Dan W

Dan W — Sat, 30 May 2009 14:59:25 +0000

I’m self-employed and make regular contributions to a SEP up to the allowable 10% limit. Am I able to make additional contributions to a traditional IRA? Are there any “SEP/Traditional combination” limits?

By: zhenka

zhenka — Thu, 16 Apr 2009 02:53:46 +0000

My husband over-contributed (by $4,000!) to his Roth tonight (4/15). By the time we discovered the error, it was too late to do anything about it online or by phone. Will he have a 6% penalty on the excess contribution? Can he move the excess to a regular IRA on 4/16, or convert some to a 2009 contribution?

By: yanny

yanny — Wed, 15 Apr 2009 16:36:55 +0000

hello!
I am Yanet and I am 19 years old. I do not understand about the Roth Ira’s system, Can you explain me it please. Also, can you help me with the formulas to do it. thanks

By: Jim

Jim — Mon, 13 Apr 2009 14:24:23 +0000

As a variation of ed DaMan’s question, my wife and I are both over age 60. I earned $1,000 and she $10,500 in year 2008. She can make a 2008 contribution of $6,000 to her Roth IRA . Can I “use” the remaining earned income “balance” and contribute $5,500 to my Roth IRA or do I have to limit my contribution to $1,000??
Does a $12,000 earned income minimum, if both are over age 50, come into play since we are both over 60??
Our MAGI for year 2008 is less than $149,000.

By: Excess in Roth IRA

Excess in Roth IRA — Fri, 10 Apr 2009 20:46:43 +0000

For 2008, I contributed to my Roth IRA account however I am not qualified to do so. Do I need to remove the excess before April 15th, 2009? Do I still need to file Form 8606 if the excess is removed? Will I be penalized for any capital gains in the Roth IRA account, even though the gains occur prior to 2008? I also contributed to 2009 as well, should I remove the excess or leave it since I don’t know right now if I am qualified to make any contribution for 2009 or not? Thanks for the advice.

By: Jeff in CA

Jeff in CA — Fri, 20 Mar 2009 04:54:17 +0000

You interpreted that as I intended. And that was exactly my question. Thanks for your answer!

By: Jeff Rose

Jeff Rose — Fri, 20 Mar 2009 02:51:46 +0000

@ Lamar. Severance pay is. Unemployment is not.

By: Jeff Rose

Jeff Rose — Fri, 20 Mar 2009 02:48:41 +0000

@ Jeff in CA (Nice name by the way)

If I think I interpret your question correctly, your wife is self-employed and contributes her entire income into an individual 401k (I interpret that as a solo-401k), so in effect she reports no income. As long as your income doesn’t exceed the phaseout limits then she’ll be able to have a Roth based on your income.

Another way of answering your last question is that the most an individual can invest into all retirement plans (without advanced planning) is $49,000. That’s Roth IRA, SEP IRA’s, Solo- 401k’s, etc. I think I answered your question, if not give me another shot.

By: Jeff in CA

Jeff in CA — Thu, 19 Mar 2009 23:36:01 +0000

@ Jeff Rose re: ed DaMan’s situtation.

Assume same circumstances and not exceeding the income phaseout limits, EXCEPT the wife is self-employed making about $10,000 for the year and puts the maximum that she can into an Individual 401(k).

My understanding is that she can still contribute up to the maximum annual limit to her Roth IRA without regard to her 401(k). The total of all contributions to Roth IRAs and individual 401(k) is less than the earned income of the couple.

Do you also see it that way?

By: Alan

Alan — Mon, 16 Mar 2009 16:09:36 +0000

I am married and filed jointly. In 2007 I received a distribution from a deferred compensation plan – box 11 contains same amount as box 1 on W2 for 07. My wife made $708 earned income. I contributed what I now believe is an excess amount of $5000 into my and $5000 into my wife’s IRA accounts and purchased stocks. The stocks are now worth about $3500. I have not yet filed my 08 return.

What should I do….

1. Withdraw $5000 from my and $5000 from my Wife’s account. Do I need to sell the securities.

2. Withdraw $4292 from each account as my wife made $708. Do I need to sell the securities.

3. Can I leave the securities there and pay the penalty 6% and consider the excess as non-deductible
contribution

Are there other options………Thanks a lot

By: Lamar

Lamar — Sun, 15 Mar 2009 23:08:31 +0000

I understand you need earned income to invest in a Roth IRA. Does severance pay and unemployment benefits consider as earned income?

By: Ben

Ben — Thu, 12 Mar 2009 18:30:55 +0000

What IRS forms do you need to file if you do a recharacterization? In some places I’m seeing a 8606 and in others a 1099.