Editor's note: This is the transcript of Kiplinger Editorial Director Kevin McCormally's commentary on the April 10 broadcast of Nightly Business Report.
I've heard from a surprising number of Nightly Business Report viewers who make too much money ... too much, that is, to contribute to a Roth IRA. Unfortunately, they made this discovery after they made the contribution. Now what do they do?
You can't make a 2006 Roth contribution if your 2006 income was over $110,000 if you file a single return, or over $160,000 on a joint return. The trick is that savvy investors know that the earlier in the year they stash their cash in an IRA, the sooner the earnings are tax free. But you're not certain about your income until the end of the year.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
That's the pickle these viewers find themselves in.
There are a couple of ways to solve the problem. You can simply ask your IRA sponsor to give you your money back. As long as it's out of the account before you file your 2006 tax return, you'll avoid the 6% "excess contribution" penalty. Now, the sponsor also has to figure how much the contribution has earned so far and send that money to you, too. You have to report and pay tax on the earnings on your 2006 return ... and you'll owe a 10% penalty if you're under age 59#189;.
The other solution is to have the IRA sponsor move your Roth contribution -- and its earnings -- to a traditional IRA. Do this by April 17 and the law treats it as though the money went to the traditional IRA in the first place. There's no income limit for contributing to a regular IRA but, if you also have a retirement plan at work, you won't be allowed to deduct your deposit.
See Kevin's previous tip.
-
Stock Market Today: The Dow Adds 15 Points To End Its Losing StreakEquity indexes opened higher but drifted lower as markets priced in new Fed forecasts.
-
What Is a Qualified Charitable Distribution (QCD)?Tax Breaks A QCD can lower your tax bill while meeting your charitable giving goals in retirement. Here’s how.
-
457 Plan Contribution Limits for 2025Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025 than in 2024.
-
Medicare Basics: 11 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2024 and 2025SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 in 2024 and $70,000 in 2025..
-
Roth IRA Contribution Limits for 2024 and 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024 and 2025simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
-
457 Contribution Limits for 2024
retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2025retirement plans The Roth 401(k) contribution limit for 2024 is increasing, and workers who are 50 and older can save even more.
