missionary funded Roth by mistake
Missionary converted and IRA to a Roth IRA back in 2006 by recommendation of his advisor. He never checked to see that the missionary claimed 100% exemption under the foreign earned income exclusion.
Now the problem is what to do. he has approx. 53k in there now.
The advisor apologized but is now telling him to either let it go or pay taxes on the Roth of over 11k from 2006 to 2016 when he funded it.
Is there anything else he can do or just pay the penalty or just let it go and never add to it again?
Thank you,
Douglas
Permalink Submitted by Alan - IRA critic on Wed, 2017-05-17 00:05
You do not need earned income to convert to a Roth, but you do to make a regular IRA contribution (either TIRA or Roth IRA contribution). If there was no earned income because of the FEIE or foreign housing exclusions, then there was an excess contribution for the years the regular contributions were made. For example, in 2006 he was not eligilbe for a regular contribution for 2006, but he could have converted to a Roth IRA up to the balance of his TIRA in excess of any excess contributions made in 2006 or prior years.