Where should I put my savings if my income is now too high for a Roth IRA?

My husband and I earn over $193K annually. I have contributed to a Roth IRA through my employee deduction system and also deposited money in an online Roth Account. I just realized that I may not be eligible for the Roth IRA because I earn too high of an income. Do I move the money to a Traditional IRA? Do I disburse all the deposits due to excess contributions? What about previous years?

Retirement Savings, IRAs
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March 2017

The income limit on who can contribute to a Roth IRA is based on AGI, not total income, so first check to make sure your AGI is more than $194,000. If it is between $184,000 - $194,000, then you can contribute a pro-rata amount to the Roth IRA. If it is below $184,000, then you're good to make the full contribution.

If your AGI has been higher than the limit in previous years and you made contributions to your Roth IRA, you need to do what's called a Return of Excess Contribution. If done after the tax year, the contribution was made. Then, when you withdraw the funds, you'll be penalized and owe an additional 6% for each year the money was in the account. I would get this corrected ASAP, work with the company who provides the online Roth Account and a CPA.

Going forward, you can still contribute to a Roth IRA if you do what's called a "Backdoor Roth IRA contribution" by first contributing to a Traditional IRA and then immediately converting it to a Roth IRA. Since there is no AGI limit to who can contribute to a Traditional IRA and who can convert to a Roth IRA, this a completely legal transaction. Keep in mind, when you contribute your funds to the Traditional IRA, do not take it as a deduction, it will be a non-deductible contribution. When you convert the funds to a Roth IRA, it won't be taxable since the contribution to the Traditional IRA was non-deductible.

If this seems at all confusing for you, I'd work with a financial advisor to make sure it is done properly. Good luck!

March 2017
March 2017
March 2017
March 2017