MAGI Exceeds Roth IRA Allowance
You probably have been asked this question over 1000 times, but… Background: My wife and I both deposited $5500 each in our Roth IRAs (in Sept 2015) for 2015 year. During the year, we each got raises and we have 2 bonds that reached final maturity, and long-term & short-term gains in a mutual fund. Adding these up (using EOY statements, not W-2 yet) our MAGI exceeds the Roth IRA allowance. Question: is there anyway that we can take this money out of each Roth and avoid the 6% excise penalty? And/Or the 10% early withdraw penalty? Sidenote: each Roth was originally opened in Nov 2013, less than 5 years ago. My age is 45, wife is 44.
Permalink Submitted by Alan - IRA critic on Sat, 2016-01-16 02:15
At this point, you might as well wait another 2 months or so to determine exactly what your joint MAGI turns out to be. You may each still be eligible for at least a partial Roth contribution. To the extent that you do end up with excess contributions, you should contact your Roth custodian and ask to have the excess amount of your 2015 contribution returned to you. The custodian will calculate earnings or loss on the contribution and send you the net amount. The only taxable amounts you will have for 2015 (not 2016) are any earnings returned. So if your earnings are $200 you will get 5700 back each and only the $200 is taxable. There is a 10% penalty on the earnings as well. But good chance you may even have a loss and if that is the case, there will be no taxes or penalty due. The deadline for the return of excess contributions for 2015 is 10/15/2016, but you should order the corrective distribution as soon as you know what part if any of your contribution is allowed. That will give you the information so that you can file your 2015 return on time.