Excess Roth Contribution

Today TaxMama hears from TC a MarketWatch reader, who says “It turns out my income has been to high for me to use a Roth IRA contribution for years. But my tax pro didn’t catch this error – and now I am over-contributed for several years and will face a 6% penalty for each year and interest for the excess contributions. Doesn’t my tax pro have some responsibility here?”

Hi TC,

If you’re telling your tax professional that you’re making ROTH IRA contributions each year, and he’s not letting you know that you’re over the limit, I’d find someone who
was paying attention to me. Or suggest to him that he pays your penalties.

On your side, though, STOP depositing money into Roth accounts at the beginning of each year. You’re obviously much too successful to qualify for a Roth. So stop being stubborn and betting that you’ll do poorly each year.

Just have patience and wait until your tax appointment to determine how much, if anything, you may put into a Roth. Of course, if you must be impatient, deposit the money into a regular IRA at the beginning of each year. And convert it to a Roth if your income is low enough to qualify.

How’s that?

Meanwhile, take those tax returns to your tax pro and ask him to fix them and pay for the penalties for the Roth over-contributions.

Incidentally, if you’re self-employed, open a solo-401(k) with a Roth IRA feature. You’re allowed to deposit up to $15,000 per year to the Roth part of the account, and more if you’re over 55. http://www.irs.gov/retirement/article/0,,id=152956,00.html#5

And remember, you’ll find answers to lots of questions about Roth IRAs and other tax information, free. Where? At TaxMama.com

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