Roth Contribution Error

Submitted by George Camera on Wed, 2020-08-26 02:49

In am use to having a company run 401k program. However, when I started a new job at the end of 2019 that company does not offer a 401k. Instead I had the option to enroll in OregonSaves the state sponsored program. I enrolled because I figured it was better than nothing. Recently though it was pointed out to me that my MAGI exceeds the earnings cap as well as the mandatory 5% contribution will put me over the annual contribution max. Question is can I withdraw without having to pay penalties if I do not roll into a traditional IRA since my earnings exclude me from a Roth IRA?

Also, I realize this is not large sums of money since the account is only 9 months old, but I prefer not to lose money when possible no matter the amount.



Submitted by Alan - IRA critic on Wed, 2020-08-26 03:36

If you are sure that your 2020 MAGI will be too high for your filing status to allow Roth IRA contributions, you should be able to first terminate the contributions, and then request a return of all your 2020 Roth contributions with the allocated earnings. The earnings you receive with the returned contributions will be taxable in 2020 and subject to the 10% penalty if you are under 59.5. The contributions returned are not subject to tax or penalty, just the earnings. 

Submitted by David Mertz on Wed, 2020-08-26 20:07

Since the account is 9 month old, it’s possible that a contribution was made for 2019 as well as contributions having been made for 2020.  In this case, as long as you timely filed your 2019 tax return or requested a filing extension, you have until October 15, 2020 to either recharacterize the 2019 contribution to a traditional IRA or obtain a return of the excess contribution for 2019.  You would do this separately from any recharacterization or return of the contributions for 2020.

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