old_yote asked:
I have taken the year off from work, but with the dramatic stock market sell-off in the past few months, I recently added to my Roth IRA account so that I could have the opportunity/funds to make additional investments. However, I have been informed that I may have made a mistake in doing so.
If I don’t get a job and earn income that is equal to or greater than my Roth contribution by the end of the year, am I going to be in trouble? Or if I don’t get a job and thus don’t file an income tax return, would it even be an issue? If caught, what would be the resulting penalty/fine? Would I be forced to sell my stocks, take a hit in early redemption, and withdraw an amount equal to my recent contribution?
I have taken the year off from work, but with the dramatic stock market sell-off in the past few months, I recently added to my Roth IRA account so that I could have the opportunity/funds to make additional investments. However, I have been informed that I may have made a mistake in doing so.
If I don’t get a job and earn income that is equal to or greater than my Roth contribution by the end of the year, am I going to be in trouble? Or if I don’t get a job and thus don’t file an income tax return, would it even be an issue? If caught, what would be the resulting penalty/fine? Would I be forced to sell my stocks, take a hit in early redemption, and withdraw an amount equal to my recent contribution?
Only earned income can be contributed to a Roth IRA. If you have a working spouse, you can use spouse’s income to contribute. If you have a traditional IRA you can convert some of the money to the Roth IRA; this will be taxable but not penalized.
I am not sure about what is required if you do not withdraw the funds by year end. I suspect that your assumptions are correct.
Try looking for answers on. Or call any tax service with a quick question, they should be able to help you.
In order to contribute to any IRA, you need “Earned Income”. Earned Income is income from wages, salary or self-employment. There is an annual 6% penalty for contributing to an IRA if you do not qualify.
Your maximum contribution is equal to $5,000 ($6,000 if you’re 50 or older) or 100% of your earned income for 2008. If you do not get a job by the end of the year, or if you do get a job but do not earn at least what you contributed to the Roth IRA, then don’t worry. You won’t get into trouble.
You have the choice of either withdrawing the funds and any interest earned or keeping the funds in the Roth IRA and paying an annual 6% excess contribution penalty. If you withdraw the funds and the earnings before the deadline for filing your 2008 taxes, there is no penalty. You also have the choice of re-characterizing the contribution for the 2009 tax year.
For each year the excess contribution remains in the Roth IRA, there is a 6% excess contribution penalty.