what happens if I make too much?

[readytorock]

I'm currently contributing to a Roth IRA. I'm a small business owner and it looks like this year I am on track to make just over $110,000 for the year, which would put me over the contribution limit. Of course, business could slow down, or speed up, so this is only a rough estimate.

If I've already contributed the full $5,000 to my Roth IRA, what happens if I end up making more than $105k and therefor have contributed more than I'm allowed?

[zetta]

You will have to re-characterize the contribution and transfer the money to a traditional IRA. The broker where you have the ROTH should be familiar with how to do this.

[creditcardfree]

You will have to re-characterize the contribution and transfer the money to a traditional IRA. The broker where you have the ROTH should be familiar with how to do this.

Agreed. Congratulations on a successful year thus far!

[wincrasher]

Actually, you should look into a SEP-IRA. They are easy to set up and you can put up to 49k a year into it and deduct it from your business income. I'm going thru this right now. Not sure how the Roth limits are applied - if it's before or after your SEP IRA contribution.

[jefffou]

A SEP would be great (if there are no employees).

Another option would be a SOLO-401k. You would have the ability to make Roth contributions up to $16,500 of the total deferral amount. The remainder would be pre-tax, or a profit sharing component. The combined deferral amount is at $49,000, unless you're 50 or older. If so, you get to put in $54,000. Also, the Roth portion of the deferral may be made without regard to income limitations.

In addition to the above, you will have higher deferral limits than any other small business plan.

Downside, if you have employees (other than yourself or your spouse) you are not eligible. Also, not as many fund companies are on board with the plan, as far as I know.

This is a pretty good page describing the plan. There are two pages dedicated to this plan on their site, and, I am not affiliated with this group.

Hope this helps.

[jIM_Ohio]

re characterize to a traditional IRA is the most painless way of doing this.
You can do this between Jan 1 and April 15 without penalty.

you can withdraw the contributions (penalty free) and withdraw the interest (pay a tax and or penalty here) as well.

[EEinNJ]

I had this happy problem once a few years ago. The amount you can contribute fades out, it's not all or nothing. The overage you can apply towards next year's contribution. Also, remember with a Roth it's only the PROFIT that is taxable. I believe you can get the principal before retirement age without taxes or penalty, but check that. That is, you might be able to just take back the overage.

[jones14richard]

I had this happy problem once a few years ago. The amount you can contribute fades out, it's not all or nothing. The overage you can apply towards next year's contribution. Also, remember with a Roth it's only the PROFIT that is taxable. I believe you can get the principal before retirement age without taxes or penalty, but check that. That is, you might be able to just take back the overage.

You're right towards next year's contribution. Also, remember with a Roth it's only the PROFIT that is taxable.