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Old 03-25-2011, 10:15 PM
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Desperately searching for an answer -- Roth IRA excess contribution

I am currently working overseas and have no domestic income. I didn't realize that this disqualified me from contributing to a Roth IRA, and made a $3000 contribution in 2010. I want to avoid withdrawing this money if possible, but I know also that I will have no domestic income in 2011.

Is it possible to leave my money in the Roth IRA for the next few years, and apply my contribution from 2010 to either the 2012 or 2013 tax year, when I return to the states and have a domestic income? If I do this, what will the penalties be? Will I have to pay 6% on the $3000 + earnings for every tax year?

Thank you!!



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Old 03-26-2011, 02:19 PM
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Join Date: Oct 2010
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“I didn't realize that this disqualified me from contributing to a Roth IRA, and made a $3000 contribution in 2010. I want to avoid withdrawing this money if possible, but I know also that I will have no domestic income in 2011.”--> You are correct; qualified income includes wages and salaries, self-employment income, alimony, commissions, and non-taxable combat pay. It does not include earnings from properties, interest or dividend income, pension or annuity income, deferred compensation, or income from certain partnerships. Nor does it include amounts excluded by the foreign earned income or housing exclusion on your income earned overseas.
“Is it possible to leave my money in the Roth IRA for the next few years, and apply my contribution from 2010 to either the 2012 or 2013 tax year, when I return to the states and have a domestic income?”--->As yu can see, you can contribute to your Roth IRA only if you have earned income from your job, so it looks like you don't qualify. One exception would be if you have a spouse who still works. In that case, she can contribute to a spousal IRA on your behalf as long as she earns more than she contributes to accounts for each of you, and you file a joint return. Remember, though, that the amount you can contribute is limited by the amount of your earned income.I guess If you contributed funds, you need to contact your fund administrator and have them deduct them from your account and send you a check.
“ If I do this, what will the penalties be? Will I have to pay 6% on the $3000 + earnings for every tax year?”--> The IRS levies a 6 percent excess contribution tax on the difference every year until you correct the discrepancy as long as you contribute your contribtuions to your R-IRA more than you are entitled to. OR your Roth IRA is intended to be a retirement account, so penalties apply if you misuse it by withdrawing funds too early before age 59½ or five years after you make your first contribution, whichever comes later. This rule does have exceptions.



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