My wife had a decent raise last year which put us over the income limits to contribute to a Roth IRA. I contributed $2400 to mine and hers was $3000.

Im not really sure what we need to do to correct this?

My wife is looking to possibly quit in the coming year or so if we have another child. She is also looking for a new job so we may fall back under the income limits later.

It looks like there is a 6% penalty. Do we just pay the penalty to the IRS for last year contributions and call it good?

Thanks for any help.

Have you considered recharacterizing them as Traditional IRA's and then converting them to Roth IRA's afterwards?

quote:

Originally posted by x0225095:
Have you considered recharacterizing them as Traditional IRA's and then converting them to Roth IRA's afterwards?

I have not. I just did a quick google search it I’m getting a lot of information converting a traditional to a Roth but not the other way

Call the company that holds the IRA. I did it one year, called & set it right.

You can withdraw the excess contribution amount plus the related earnings up to the due date of your return for the given year. So if the excess was contributed in 2020, you have until April 15, 2021 to pull it back out. The earnings computation is something your plan administrator or your tax preparer can do for you.

Could be because of my age... but I thought 7k was max ROTH annual contribution

Hey there gpbst3,

here is the IRS link.....

https://www.irs.gov/retirement...of-ira-contributions

Always best to check with the advisor at the custodian of your ROTH accounts of course.

quote:

Originally posted by snwghst:
Could be because of my age... but I thought 7k was max ROTH annual contribution

It's typically $6,000, or $7,000 if you're age 50 or older.

However, that's for people with annual income of less than $124k, or a married couple making less than $196k. It's reduced above those income limits, and cuts off at $139k/$206k.

In the OP's case, his wife's raise partway through the year led to them being over the limit.

quote:

Originally posted by x0225095:
Have you considered recharacterizing them as Traditional IRA's and then converting them to Roth IRA's afterwards?

I called Vanguard and opened a traditional IRA. Transferred the required amount over and they had a formula for the interest gained. No penalties. Thanks

There's a limit on contributions to all IRAs combined.

Glad it worked out for you.