Question regarding penalty associated with excess Roth IRA contribution

Posted by morrie on April 14, 2006, 3:45 am

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I had a question regarding contributing to our roth IRA --

Our combined income is over the $150k limit and our max
contribution is only limited to $2k. I'm wondering if we
can take a penalty and still contribute the full amount into
our Roth IRA.

What are some of the implications and consequences for doing
so? It seems like it would make sense to pay that penalty
to add the extra $2k into each of our accounts.

Any thoughts is greatly appreciated. Thanks in adv.

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Posted by Phil Marti on April 15, 2006, 2:08 am

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> Our combined income is over the $150k limit and our max

> contribution is only limited to $2k. I'm wondering if we

> can take a penalty and still contribute the full amount into

> our Roth IRA.

> What are some of the implications and consequences for doing

> so? It seems like it would make sense to pay that penalty

> to add the extra $2k into each of our accounts.

The 6% penalty is annual, not one time. It means that for
the life of the investment, the first 6% of earnings goes to
Sam. Kinda like having to make book at a bridge table.

--
Phil Marti
Clarksburg, MD

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Rich Carreiro on April 15, 2006, 2:28 am

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> I had a question regarding contributing to our roth IRA --

> Our combined income is over the $150k limit and our max

> contribution is only limited to $2k. I'm wondering if we

> can take a penalty and still contribute the full amount into

> our Roth IRA.

Keep in mind that it's not a 1-year penalty. The penalty
continues each and every year until the excess contribution
is withdrawn or resolved. So you'll pay a $120 penalty (6%
of the $2000 excess) each year.

--
Rich Carreiro rlcarr@animato.arlington.ma.us

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>