Roth Contribution – Just Married
A woman who has been making monthly contributions to her ROTH IRA for the entire year (2009), gets married in Sept. of that same year. Does the IRS look back as if she was married for the entire year (2009?)
She is now married filing seperately for 2009 and claims she must remove all ROTH IRA contributions from 2009. If so, will she just withdraw “excess contributions” and then how will the earnings be reported?
Thanks,
K
Permalink Submitted by Alan Spross on Mon, 2010-03-29 18:52
Yes, she is considered married for the entire year, and filing separately will lower her allowed income for a Roth contribution down to 10,000. She can either remove the excess contribution including earnings or recharacterize the contribution as a traditional IRA contribution which would be non deductible. That way the earnings can stay in the IRA and she could convert it to a Roth IRA this year since there are no longer income limits for conversions. A pro rated amount of her conversion would be tax free based on the pro rate rules.
If she withdraws the contribution, the IRA custodian will usually calculate the earnings and the earnings would be taxable in 2009 and subject to the 10% early withdrawal penalty unless she qualifies for an exception. The better the earnings are, the better the choice to recharacterize the contribution becomes.
With respect to filing separately, if the spouse has tax problems that might be the way to go, but generally filing separately is more costly.