Traditional IRA

legion · 03-05-2010, 08:30 AM

We apparently earn too much to make tax-free contributions to my wife's traditional IRA. We had to pay taxes on the "excess contributions" this year, so we are getting a big, fat refund from her IRA.

We won't incur a penalty as we have already paid the taxes, and the contributions were excess--above what we are allowed to contribute by law.

We will probably put the money in a Roth IRA instead, but we may sit on the cash for a while until the house thing settles out.

MBAtarga · 03-05-2010, 08:47 AM

Just send the funds to me. I'll PM my paypal account.

biosurfer1 · 03-05-2010, 01:04 PM

Did you also max out 401k contributions?

Sucks you had to pay taxes but having too much money is a good thing I guess

pwd72s · 03-05-2010, 02:00 PM

Not directly related, but keep in mind that the Bush capital gains and income tax cuts are set to expire on Jan. 1, 2011.

Don't count on Obama signing a bill to extend them...

red-beard · red-beard's Garage

Quote:

Originally Posted by legion

We apparently earn too much to make tax-free contributions to my wife's traditional IRA. We had to pay taxes on the "excess contributions" this year, so we are getting a big, fat refund from her IRA.

We won't incur a penalty as we have already paid the taxes, and the contributions were excess--above what we are allowed to contribute by law.

We will probably put the money in a Roth IRA instead, but we may sit on the cash for a while until the house thing settles out.

Gold and bury in the back yard of the new house

legion · 03-05-2010, 06:11 PM

Quote:

Originally Posted by red-beard

Gold and bury in the back yard of the new house

I prefer lead as my commodity-metal investment vehicle of choice.

campbellcj · 03-05-2010, 10:29 PM

I am confused...there has been an annual limit on traditional IRA contributions for many years. Did you deposit more than that and try to deduct it? Just curious.

legion · 03-05-2010, 10:31 PM

No, we hit the income limit for being eligible to contribute to a traditional IRA this year.

campbellcj · 03-05-2010, 10:37 PM

Got it, sorry I misread and thought you were not being allowed to make the contribution due to AGI. You can always contribute, but it's just not tax-deductible (or only partly).

legion · 03-06-2010, 11:22 AM

Quote:

Originally Posted by campbellcj

Got it, sorry I misread and thought you were not being allowed to make the contribution due to AGI. You can always contribute, but it's just not tax-deductible (or only partly).

Right. This is why we will probably put the money in a Roth instead.

campbellcj · 03-06-2010, 11:51 AM

The Roth is the one with an income cap on contribution eligibility. Except for 2010 you can convert an existing conventional IRA to a Roth regardless of AGI, but you have to pay the taxes upon conversion.

I am thinking about doing this, but have one question: do you have to pay taxes upon Roth conversion even if your original contribution was not tax deductible due to the income cap? If so that would diminish the appeal of converting significantly. I've got to crunch some numbers.