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 Message Boards » » IRA & Roth IRA Discussion Page 1 2 [3], Prev  
Doss2k
All American
17977 Posts
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Bunch of humble bragging ITT

3/9/2017 10:41:38 AM

Geppetto
All American
1383 Posts
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yeah, sorry about that. i even felt like a douche writing it but Quicksilver seems to know enough to answer that lingering question, so i figured why not.

since no one reads the last post:

Quote :
"

Quote :
"I just did my taxes this weekend and as I'm inputting my W-2s, I quickly realize that I didn't even think about Roth income limits and I'm going to end up being totally ineligible "



So this happened to me this year. i've never reported my roth on taxes because i've never thought it was required, especially since i never get a 10xx form for it or anything. my wife's new job doesn't have a 401k, so i entered in her IRA information, which is when I also saw that our roth was ineligible for the 2016 year, and it appears it was the previous year as well.

Do I need to correct this? How will the system know to work itself out when I retired in 30+ years? Also, same applies for the IRA. That was ineligible for deduction status as well, so how will the system know in 30 years not to charge tax on that portion of the contribution?"

3/9/2017 2:55:10 PM

CalledToArms
All American
21766 Posts
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i realized that too as I'm writing it. But most people don't know me in real life here and plenty TWWers make more than I do so I don't really know who I'd be bragging to haha

3/9/2017 3:23:02 PM

Jeepin4x4
Cam Time Steamroller
34803 Posts
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congratulations on your successful careers, braggots

3/9/2017 4:38:32 PM

NCSUam0s
All American Tease
2198 Posts
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Quote :
"Has anyone else here over-contributed due to a salary increase pushing them into the phase-out or totally ineligible bracket in a given year?"


You have two options:
1. Recharacterize the contributions and estimated earnings to a traditional IRA (non deductible) - then do IRA conversion to Roth (Back Door IRA - links below)
2. Pull out the contributions and earnings on the contribution and pay tax on the earnings plus early withdrawal penalty on the earnings.

Your brokerage firm should be able to provide you with further advice on this. Any changes for 2016 need to be done prior to April 18, 2017 to avoid a 6% penalty.

Backdoor IRA Info:
https://personal.vanguard.com/us/insights/video/2505-Exc2
https://www.nerdwallet.com/blog/investing/backdoor-roth-ira-high-income-how-to-guide/
http://news.morningstar.com/articlenet/article.aspx?id=687449

3/9/2017 7:34:19 PM

PackBacker
All American
14351 Posts
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Quote :
"So this happened to me this year. i've never reported my roth on taxes because i've never thought it was required, especially since i never get a 10xx form for it or anything. my wife's new job doesn't have a 401k, so i entered in her IRA information, which is when I also saw that our roth was ineligible for the 2016 year, and it appears it was the previous year as well.

Do I need to correct this? How will the system know to work itself out when I retired in 30+ years? Also, same applies for the IRA. That was ineligible for deduction status as well, so how will the system know in 30 years not to charge tax on that portion of the contribution?"


I am no accountant, buuuut:

I believe you will continue to accrue penalties on your roth contributions for EVERY year until you remove your contributions and any gains on those contributions. Even if you didn't report it to the IRS, your brokerage almost assuredly did.

Moral of the story, you should pull it out and recharacterize it into a traditional IRA is my advice

3/9/2017 9:35:04 PM

David0603
All American
12575 Posts
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^^ & ^

3/9/2017 10:29:53 PM

Geppetto
All American
1383 Posts
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^^

but the IRS says that we don't need to report Roth IRA contributions on the tax returns:

Quote :
"Roth IRAs
A Roth IRA differs from a traditional IRA in several ways. Contributions to a Roth IRA aren't deductible (and you don't report the contributions on your tax return), "


https://www.irs.gov/taxtopics/tc451.html

I think that is what get's me so confused. How is it tracked if the IRS says you're not supposed to report it?

3/10/2017 11:58:14 AM

Str8BacardiL
Real Estate Agent
41038 Posts
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I always thought the IRS did not care about what goes in and out of a ROTH (except for the gains). The money that goes in is not tax-deferred.

3/10/2017 10:34:45 PM

quiksilver
Veteran
279 Posts
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You don't report it to the IRS but your broker does on form 5498. That said I have never seen the IRS come at someone for overcontribution in a Roth so I am uncertain of their monitoring. All of the ones I have corrected were caught by client and/or CPA. If I were you I would be to get it corrected. IRS audits run several years behind so just because they haven't busted you yet doesnt mean that letter isnt coming. I'm not a CPA so i could be totally wrong about audit and Im sure people get away with it. Im uncertain of the risk of letting it slide so would err on the side of caution.

[Edited on March 11, 2017 at 7:16 AM. Reason : .]

3/11/2017 7:11:09 AM

Geppetto
All American
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Thanks. I wish it were reported because then it'd be much easier to prevent stuff like this :-/

However, it's not a mistake that I'll make again. I appreciate all the advice.

3/11/2017 12:50:51 PM

CalledToArms
All American
21766 Posts
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Got behind with work and other shit. Called vanguard today and took care of this finally though. Thanks for the help.

3/22/2017 1:20:32 PM

The Coz
Tempus Fugitive
16301 Posts
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^How hard was it?

3/22/2017 8:17:04 PM

David0603
All American
12575 Posts
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1 day to xfer it to the new ira and another day to xfer it back
Had to sign on to approve the opening of the new ira while I was on the phone

3/22/2017 8:44:54 PM

CalledToArms
All American
21766 Posts
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yeah it was easy. i was not even on the phone very long. Vanguard was super helpful. But it helped doing my own reading and asking in this thread beforehand still, so that I understood the gist of what was going on already.

[Edited on March 24, 2017 at 12:56 PM. Reason : ]

3/24/2017 12:56:00 PM

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