My certificate of deposit (CD) has just matured and I plan to contribute $10,000 of it to my current Roth IRA account. The person doing my taxes can't tell me why I can't make such a large contribution except for my low income - I am a disabled veteran on

By Denise Appleby AAA
A:

Your regular Roth IRA contribution can't exceed $4,000 annually. If you are at least age 50 by Dec 31, 2005, you can contribute an additional $500, bringing your annual contribution limit to $4,500. However, if your income for the year is less than $4,000, your contribution can't be higher than your income. For instance, if your income for the year is $3,000, you may contribute no more than $3,000 for the year.

These contribution limits are established by federal law. If you contribute more than the limit, the excess amounts may be subject to penalties and excise taxes, unless you remove the excess amount by certain deadlines.

Here's another option to consider: if the $10,000 is from a Traditional IRA CD, then you can put the entire amount in your Roth IRA as a Roth IRA conversion, provided your modified adjusted gross income (MAGI) is not more than $100,000 and your tax filing status is not married filing separately. The $100,000 limit applies to you and your spouse if you are married, which means your joint MAGI cannot exceed $100,000.

You may find IRS publication 590 helpful.

(For more on Roth IRA conversion, see Avoiding IRS Penalties on Your IRA Assets, Did Your Roth IRA Conversion Pass or Fail? and Roth IRA: Back to Basics.)

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS

  1. Should I purchase a master limited partnership (MLP) in my retirement account?

    Learn why investors may have to pay taxes on dividends from master limited partnerships, or MLPs, held in individual retirement ...
  2. What are the tax implications of owning a master limited partnership (MLP)?

    Learn about the tax benefits of owning units in a master limited partnership, and understand how distributions are treated ...
  3. How should I invest the money I keep on my IRA?

    For individuals who are just starting to save, certificates of deposit can be a good place to start, but the interest rates ...
  4. Why choosing the right investment adviser is crucial for your portfolio's health

    Absolutely! Just as finding a good mechanic will help keep your car running smoothly, finding a good broker or financial ...
RELATED TERMS
  1. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  2. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  3. Senior Move Manager

    Senior move managers (SMMs) help seniors downsize and relocate ...
  4. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  5. Gold IRA

    Definition of Gold IRA
  6. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...

You May Also Like

Related Articles
  1. Retirement

    Top 10 Stocks for Retirement Portfolios

  2. Trading Strategies

    Top 7 Roth IRA Stocks for 2015

  3. Options & Futures

    Options and Roth IRAs: Do's and Don'ts

  4. Professionals

    Are Longevity Annuities in 401(k)s a ...

  5. Professionals

    Why Retirement Advice Is Better But ...

Trading Center