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Posted by deja_bhoot2000 on November 24, 2006, 11:34 pm
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My spouse and I contribuited $2000 each to our Roth IRAs in
1999 and again in 2000. Uufortunately, starting with 2001,
based on AGI, we have been completely phased out from any
further contribution to these accounts.
With time, our AGI has only increased -- I am not
complaining about increase in our salaries :-) I don't
foresee ever being able to contribute anymore; spouse will
be eligible if and when she quits workforce (might happen in
a few years).
Both accounts generate $10 fee / per account / per year
(unavoidable, even with high balances at Vangaurd in other
accounts), and 8 set of additional statements each year
(once per quarter, due to dividend distribution, per
account). All in all, a nuisance for such a small
investment.
So, I am thinking of liquidating both accounts: mine has a
small loss -- the original 4K, invested in Gorwth Index,
with all dividends included, is about $3700 now. Spouses's
original 4K, invested in S&P 500 Index, is worth about $4500
now.
What are tax consequences of closing these two accounts? Do
we have to report it on 1040? Schedule - D? No where? Any
other consequences?
Bhoot Nath
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Posted by Phil Marti on November 26, 2006, 10:54 am
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> My spouse and I contribuited $2000 each to our Roth IRAs in
> 1999 and again in 2000. Uufortunately, starting with 2001,
> based on AGI, we have been completely phased out from any
> further contribution to these accounts.
>
> With time, our AGI has only increased -- I am not
> complaining about increase in our salaries :-) I don't
> foresee ever being able to contribute anymore; spouse will
> be eligible if and when she quits workforce (might happen in
> a few years).
If you file a joint return and your joint AGI is under the
Roth limit, you both can contribute based on one's earnings.
See IRS Publication 590.
> Both accounts generate $10 fee / per account / per year
> (unavoidable, even with high balances at Vangaurd in other
> accounts), and 8 set of additional statements each year
> (once per quarter, due to dividend distribution, per
> account). All in all, a nuisance for such a small
> investment.
You don't need those statements for any tax purpose.
The last time I looked (years ago) your account balances are
high enough to avoid maintenance fees at Fidelity. I'm sure
there's a custodian somewhere who wouldn't charge a fee.
Vanguard might even waive theirs if you told them you were
going to move all your accounts elsewhere. Just something
to think about when a financial institution forgets whose
money we're talking about.
Vanguard would probably charge a premature distribution fee
if you move the account, but they're also going to charge
such a fee if you cash out.
> So, I am thinking of liquidating both accounts: mine has a
> small loss -- the original 4K, invested in Gorwth Index,
> with all dividends included, is about $3700 now. Spouses's
> original 4K, invested in S&P 500 Index, is worth about $4500
> now.
>
> What are tax consequences of closing these two accounts?
Assuming you're both under 59 1/2:
You have a $300 miscellaneous itemized deduction on Schedule
A, subject to the 2% of AGI exclusion. Probably worthless.
Your wife has $500 taxable income calculated on Form 8606.
There will be a $50 penalty in addition to the income tax.
--
Phil Marti
Clarksburg, MD
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Herb Smith on November 26, 2006, 10:54 am
Please log in for more thread options deja_bhoot2000@yahoo.com wrote:
> My spouse and I contribuited $2000 each to our Roth IRAs in
> 1999 and again in 2000. Uufortunately, starting with 2001,
> based on AGI, we have been completely phased out from any
> further contribution to these accounts.
Actually, you could (and still can) make your contributions
to nondeductible/ after tax IRA accounts. Then, in 2010, you
could convert the traiditional IRA to the Roth, with
possibly little or no tax liability. Lost opportunity for
2001 to 2005, however.
> With time, our AGI has only increased -- I am not
> complaining about increase in our salaries :-) I don't
> foresee ever being able to contribute anymore; spouse will
> be eligible if and when she quits workforce (might happen in
> a few years).
You're mistaken. Since the AGI limit is based on joint
income, if you can't contribute then neither can she.
> Both accounts generate $10 fee / per account / per year
> (unavoidable, even with high balances at Vangaurd in other
> accounts), and 8 set of additional statements each year
> (once per quarter, due to dividend distribution, per
> account). All in all, a nuisance for such a small
> investment.
>
> So, I am thinking of liquidating both accounts: mine has a
> small loss -- the original 4K, invested in Gorwth Index,
> with all dividends included, is about $3700 now. Spouses's
> original 4K, invested in S&P 500 Index, is worth about $4500
> now.
>
> What are tax consequences of closing these two accounts? Do
> we have to report it on 1040? Schedule - D? No where? Any
> other consequences?
In the following discussion it is assumed that neither one
of you is above age 59-1/2, so none of the withdrawals are
"qualified". If that is not true, the answer would be
somewhat different.
Your account is currently worth LESS than the total of your
after-tax contributions, therefore there are no "earnings".
You can withdraw the entire account, with no tax liability
or penalty. If you itemize your deductions, you can claim
your loss ($300) as a Miscellaneous Deduction, subject to
the 2% of AGI limitation. This may give you a slight tax
benefit, depending on other Misc Deductions.
The withdrawal will be reported to you on a 1099-R form. You
will report on two forms, 8606 (to show your "basis") and
Line 15a and 15b of your 1040. Line 15a is the gross
withdrawal, 15b would be -0- (since none is taxable). Use
Schedule A of your 1040 to claim the loss.
Your spouse's account is currently worth MORE than the total
of her after-tax contributions, therefore has "earnings" to
be taxed. The total contributions ($4000) are withdrawn tax-
and penalty-free. The earnings ($500) are subject to
ordinary tax rates and, also, subject to a 10% early
withdrawal penalty.
Her custodian will report the withdrawal on a 1099-R form.
Three forms will be needed to report the withdrawal, income
and penalty to the IRS. Form 8606 is used to calculate her
basis in the account, Lines 15a ($4500) and 15b ($500) of
your joint 1040 will report the extra income, and Form 5329
will calculate the penalty. An additional line on the 1040
is used to report the penalty and add it to any tax due.
Tax deferred accounts (e.g. IRAs) do not generate capital
gains, so do not enjoy the lower tax rates like a taxable
account would. Schedule D is not used.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Harlan Lunsford on November 26, 2006, 10:54 am
Please log in for more thread options deja_bhoot2000@yahoo.com wrote:
> My spouse and I contribuited $2000 each to our Roth IRAs in
> 1999 and again in 2000. Uufortunately, starting with 2001,
> based on AGI, we have been completely phased out from any
> further contribution to these accounts.
>
> With time, our AGI has only increased -- I am not
> complaining about increase in our salaries :-) I don't
> foresee ever being able to contribute anymore; spouse will
> be eligible if and when she quits workforce (might happen in
> a few years).
>
> Both accounts generate $10 fee / per account / per year
> (unavoidable, even with high balances at Vangaurd in other
> accounts), and 8 set of additional statements each year
> (once per quarter, due to dividend distribution, per
> account). All in all, a nuisance for such a small
> investment.
>
> So, I am thinking of liquidating both accounts: mine has a
> small loss -- the original 4K, invested in Gorwth Index,
> with all dividends included, is about $3700 now. Spouses's
> original 4K, invested in S&P 500 Index, is worth about $4500
> now.
>
> What are tax consequences of closing these two accounts? Do
> we have to report it on 1040? Schedule - D? No where? Any
> other consequences?
ROTH accounts are still the very best money can buy. While
maybe not being able to avoid a service fee, at least switch
to online statements instead of having to put up with paper
statements.
Or consider finding a new place to rollover the ROTH
accounts, perhaps one without any fees.
ChEAR$,
Harlan Lunsford, EA n LA
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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