Need some help with a Roth IRA account

[GundamW]

I opened a Scottrade account last week hoping to put money into a Roth IRA account for tax year 2006. (I am totally new in investing in general.) I invested the money into 4 different mutual funds yesterday and the orders had been received by Scottrade but the money is still in the account.

Today, I am doing my taxes and found out that I can't put $4000 into a Roth IRA account. I can only put in $2000 max because of my income and anything more I have to pay a penalty (don't know how much either).

What is my best option(s) here? I went into my Scottrade account and I don't see any way to stop the orders. The fund is still in my account. Should I stop the order somehow and divert the excess amount to something else or just request a withdraw?

I need some help on what to do next. Again, I am a noob in this.
Any help would be appreciated. Thanks.

 

[chusteczka]

I recommend contacting the financial firm you sent your money to and see if they can help you with this situation.

 

[Auggie]

Negative. ATOT'ers will be completely adequate to help this gentleman.

 

[PAB]

Originally posted by: GundamW
I opened a Scottrade account last week hoping to put money into a Roth IRA account for tax year 2006. (I am totally new in investing in general.) I invested the money into 4 different mutual funds yesterday and the orders had been received by Scottrade but the money is still in the account.

Today, I am doing my taxes and found out that I can't put $4000 into a Roth IRA account. I can only put in $2000 max because of my income and anything more I have to pay a penalty (don't know how much either).

What is my best option(s) here? I went into my Scottrade account and I don't see any way to stop the orders. The fund is still in my account. Should I stop the order somehow and divert the excess amount to something else or just request a withdraw?

I need some help on what to do next. Again, I am a noob in this.
Any help would be appreciated. Thanks.

Ok, first things first - you cant put "too much" in an IRA. If you did, like I accidentally did - the broker's compliance department triggers an alert and will call you regarding the situation. I put the wrong account number on a check and I diverted too much money into an IRA (over $4000 for the year) and their compliance department called me regarding it.

You can certainly put $4000 into a Roth IRA - even if you only made $2000 on paper, you can claim $2000 in unreported income. I havent filed a tax return in a while and I still make a $4000 contribution. ATTENTION INTERNET DETECTIVES: I dont file because I need to make more than $8k in taxable income.

You cant "stop" an order thats already b een placed. If you do a withdrawl, you'll be penalized for early withdrawl from the IRS.

My suggestion: Stop sweating it and enjoy your retirement savings.

 

[GundamW]

Originally posted by: PAB

Ok, first things first - you cant put "too much" in an IRA. If you did, like I accidentally did - the broker's compliance department triggers an alert and will call you regarding the situation. I put the wrong account number on a check and I diverted too much money into an IRA (over $4000 for the year) and their compliance department called me regarding it.

You can certainly put $4000 into a Roth IRA - even if you only made $2000 on paper, you can claim $2000 in unreported income. I havent filed a tax return in a while and I still make a $4000 contribution. ATTENTION INTERNET DETECTIVES: I dont file because I need to make more than $8k in taxable income.

You cant "stop" an order thats already b een placed. If you do a withdrawl, you'll be penalized for early withdrawl from the IRS.

My suggestion: Stop sweating it and enjoy your retirement savings.

So what is that penalty thing Taxcut was talking about?

Someone suggested that I put 1/2 of that money into the 2007 contribution. Make sense to me. But what do you guys thing?

 

[PAB]

Originally posted by: GundamW

Originally posted by: PAB

Ok, first things first - you cant put "too much" in an IRA. If you did, like I accidentally did - the broker's compliance department triggers an alert and will call you regarding the situation. I put the wrong account number on a check and I diverted too much money into an IRA (over $4000 for the year) and their compliance department called me regarding it.

You can certainly put $4000 into a Roth IRA - even if you only made $2000 on paper, you can claim $2000 in unreported income. I havent filed a tax return in a while and I still make a $4000 contribution. ATTENTION INTERNET DETECTIVES: I dont file because I need to make more than $8k in taxable income.

You cant "stop" an order thats already b een placed. If you do a withdrawl, you'll be penalized for early withdrawl from the IRS.

My suggestion: Stop sweating it and enjoy your retirement savings.

So what is that penalty thing Taxcut was talking about?

Someone suggested that I put 1/2 of that money into the 2007 contribution. Make sense to me. But what do you guys thing?

Penalty? You can have income that isnt on your taxes.

BTW, max out 06 before April 15 and put the rest towards 07. You want to max out tax deferred retirement savings before you hit the glass ceiling and they stop letting you contribute.

 

[Malfeas]

Ok, here is a stupid question. But who is going to know that you contributed more than your income allows, other than you? Since you don't report your income to Scotttrade, how would they check? Does the IRS compare your Roth contribution to your filed tax return? I ask because I don't know either and am in a similar situation. Several of my co-workers have told me they have made max contributions for years, even though in some years they shouldn't be allowed to contribute at all to a Roth due to high income.

 

[quikah]

That happened to me once. I contributed $4k to my Roth IRA early in the year, then my income shot up due to a job change, so my AGI was too high to contribute the full $4000 to my IRA (if you are near $95k AGI, don't contribute until the year is over to avoid this mess) . I took a distribution for the amount I over contributed+earnings. The tricky part is that you need to calculate the amount of earnings that the excess contribution generated and take that amount out also (there is a worksheet for this), you then just declare it as normal income (though I forget if you need to pay early withdrawal penalties on the earnings).

Probably easiest to jut talk to Scott trade and have them push the excess over to 2007.

There is a 6% tax penalty if you don't do any of this before the 2006 deadline, but I am not entirely clear on this.

More info than you would ever want is in http://www.irs.gov/pub/irs-pdf/p590.pdf

 

[quikah]

Originally posted by: Malfeas
Ok, here is a stupid question. But who is going to know that you contributed more than your income allows, other than you? Since you don't report your income to Scotttrade, how would they check? Does the IRS compare your Roth contribution to your filed tax return? I ask because I don't know either and am in a similar situation. Several of my co-workers have told me they have made max contributions for years, even though in some years they shouldn't be allowed to contribute at all to a Roth due to high income.

No one knows, it is all up to you to report this truthfully. You can contribute max even though you don't qualify and nothing will happen...until the IRS decides to audit you (and contributing more than you are allowed is a great way to point out you need auditing). Then you are boned. They will find out you over contributed and start laying out the fines and penalties.

 

[GundamW]

Originally posted by: quikah
That happened to me once. I contributed $4k to my Roth IRA early in the year, then my income shot up due to a job change, so my AGI was too high to contribute the full $4000 to my IRA (if you are near $95k AGI, don't contribute until the year is over to avoid this mess) . I took a distribution for the amount I over contributed+earnings. The tricky part is that you need to calculate the amount of earnings that the excess contribution generated and take that amount out also (there is a worksheet for this), you then just declare it as normal income (though I forget if you need to pay early withdrawal penalties on the earnings).

Probably easiest to jut talk to Scott trade and have them push the excess over to 2007.

There is a 6% tax penalty if you don't do any of this before the 2006 deadline, but I am not entirely clear on this.

More info than you would ever want is in http://www.irs.gov/pub/irs-pdf/p590.pdf

Thanks for the info. I guess I will have to call them Monday.
There shouldn't be any fee or penalty if I move 1/2 of the contributions to 2007 when the money is already invested into the 4 mutual funds, right?

 

[jadinolf]

Originally posted by: Auggie
Negative. ATOT'ers will be completely adequate to help this gentleman.

:laugh:

 

[Sukhoi]

Hmm I did not realize I could still make 2006 contributions for another 2 weeks. Guess I have to come up with 4K cash by then! Could be fun.

 

[quikah]

Originally posted by: GundamW

Thanks for the info. I guess I will have to call them Monday.
There shouldn't be any fee or penalty if I move 1/2 of the contributions to 2007 when the money is already invested into the 4 mutual funds, right?

You need to move the earnings you gained from the overcontribution also. I am not sure about the fees on this, haven't gotten around to checking my old tax filings. I know you will need to treat it as normal income, I just don't remember if you will have to pay the early withdrawal penalty on this also (even if you do it will be small since it is just the earnings from the overpayment, and you just opened the account, may actually be zero unless the funds have paid any dividends out, best to ask Scott )

 

[Lithium381]

Originally posted by: Sukhoi
Hmm I did not realize I could still make 2006 contributions for another 2 weeks. Guess I have to come up with 4K cash by then! Could be fun.

yep, it's what i just did last week, trying to decide which fund i want it in though

 

[TheNinja]

Can I piggy back on this thread and ask a ROTH IRA related question?

If I already file and received my return for 2006 taxes and I decide to put some in a ROTH IRA prior to April 15, would I refile for an extra return? Do I just leave well enough alone and not do anything until after April 15?

 

[alrocky]

Originally posted by: TheNinja
Can I piggy back on this thread and ask a ROTH IRA related question?

If I already file and received my return for 2006 taxes and I decide to put some in a ROTH IRA prior to April 15, would I refile for an extra return? Do I just leave well enough alone and not do anything until after April 15?

ROTH IRA for tax year 2006? You're good to go and don't have to refile.

 

[GundamW]

Originally posted by: quikah
You need to move the earnings you gained from the overcontribution also. I am not sure about the fees on this, haven't gotten around to checking my old tax filings. I know you will need to treat it as normal income, I just don't remember if you will have to pay the early withdrawal penalty on this also (even if you do it will be small since it is just the earnings from the overpayment, and you just opened the account, may actually be zero unless the funds have paid any dividends out, best to ask Scott )

Yea. I called Scottrade and they said I just need to go in to the store, give them a piece of paper with the amount to recode, sign it, and that would be it. No fee or anything.

Thanks everyone for the help. Really appreciated.

And bump for TheNinja.

 

[TheNinja]

Originally posted by: alrocky

Originally posted by: TheNinja
Can I piggy back on this thread and ask a ROTH IRA related question?

If I already file and received my return for 2006 taxes and I decide to put some in a ROTH IRA prior to April 15, would I refile for an extra return? Do I just leave well enough alone and not do anything until after April 15?

ROTH IRA for tax year 2006? You're good to go and don't have to refile.

Yes, I read you can put $4k into a Roth IRA for tax year 2006 up to April 15, 2007. Then on April 20, 2007 I could put another $4k into the Roth IRA for tax year 2007. Is that legit?

 

[thirtythree]

Originally posted by: TheNinja

Originally posted by: alrocky

Originally posted by: TheNinja
Can I piggy back on this thread and ask a ROTH IRA related question?

If I already file and received my return for 2006 taxes and I decide to put some in a ROTH IRA prior to April 15, would I refile for an extra return? Do I just leave well enough alone and not do anything until after April 15?

ROTH IRA for tax year 2006? You're good to go and don't have to refile.

Yes, I read you can put $4k into a Roth IRA for tax year 2006 up to April 15, 2007. Then on April 20, 2007 I could put another $4k into the Roth IRA for tax year 2007. Is that legit?

I believe you can contribute for any given yearr (example, 2006) from January 1st, 2006 through April 15th, 2007. For example, when I first opened my Roth IRA, it was between January 1st and April 15th, so I contributed for both years.

I don't think you'd need to refile as contributions don't affect your taxes AFAIK. A traditional IRA would be a different story.

 

[BigJelly]

Originally posted by: thirtythree

Originally posted by: TheNinja

Originally posted by: alrocky

Originally posted by: TheNinja
Can I piggy back on this thread and ask a ROTH IRA related question?

If I already file and received my return for 2006 taxes and I decide to put some in a ROTH IRA prior to April 15, would I refile for an extra return? Do I just leave well enough alone and not do anything until after April 15?

ROTH IRA for tax year 2006? You're good to go and don't have to refile.

Yes, I read you can put $4k into a Roth IRA for tax year 2006 up to April 15, 2007. Then on April 20, 2007 I could put another $4k into the Roth IRA for tax year 2007. Is that legit?

I believe you can contribute for any given yearr (example, 2006) from January 1st, 2006 through April 15th, 2007. For example, when I first opened my Roth IRA, it was between January 1st and April 15th, so I contributed for both years.

I don't think you'd need to refile as contributions don't affect your taxes AFAIK. A traditional IRA would be a different story.

I think it only affects your taxes if you make less then 25k if single, 50k if maried, or 37.5k if head of the house hold. Form 8880 to get the value to be inserted in line 51 page 2 of your Tax Return (Form 1040).

 

[alrocky]

Originally posted by: TheNinja
Yes, I read you can put $4k into a Roth IRA for tax year 2006 up to April 15, 2007. Then on April 20, 2007 I could put another $4k into the Roth IRA for tax year 2007. Is that legit?

Yes. You can contribute $4k in your 2007 IRA anytime from Jan 1st 2007 to April 15th 2008. The amount gets bumped to $5k for tax years 2008 and 2009.

By the way, what mutual funds are you all putting your money in?

 

[DJFuji]

Good god you people have >$95k AGI? Either you have ZERO tax write offs or you make a god damned fortune.