Investing too much money in my Roth - what happens?

[BrianJone]

I was told that there is no penalty for investing an improper amount into a Roth IRA as long as its corrected the following year. The way it was explained to me: if I invest $1,000 in a 2013 Roth today but learn from my taxes that I didn't meet the minimum requirement for a Roth, I must remove the $1,000 plus interst and also must pay taxes on any interest that $1,000 earned. If I invest that same $1,000 today but make too much and exceed the maximum requirement for a Roth, I can just move this $1,000 to a traditional IRA or other retirement account. Either option would be done without penalty (though tax may be owed on interst earned).

Can anyone tell me if this is accurate information?

I will likely (98% chance) qualify between the minimum and maximum for a Roth. But I want to have all the facts incase my income changes drastically this year. Please offer any helpful information you can. Thanks

[BrianJone]

For 2012, contributions to a Roth IRA are phased out between $173,000 and $183,000 for married couples filing jointly and between $110,000 and $125,000 for single filers.

But what will happen if I contribute some to my 2013 Roth later next week and find out in January 2014 that I didn't qualify?

[bUU]

You have to work with your custodian to back out (or recharacterize) both the excess contributions and the earnings on that specific portion of the contributions. If you do this before the filing deadline, there is no 6% penalty tax on the distribution (but there is a 10% penalty on the gains withdrawn, unless they qualify for some other reason, such as if you're over 59 1/2).