 Excess Roth IRA contribution
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 Dear
Tax Talk,
I made the maximum IRA contribution of $5,000 in early January 2007
for tax year 2007. I am 62-plus years old and retired in July 2006.
I will have no "earned" income -- from wages, etc. -- in 2007. I
do get a company pension in excess of $5,000 per year that is taxed.
Is my 2007 IRA contribution legal in the eyes of the IRS?
Thanks.
-- Jim
 Dear
Jim,
Even though a contribution to a Roth IRA is not deductible, you
still have to meet the eligibility requirements to contribute.
If you are age 50 or older before 2008 and you only make contributions
to Roth IRAs, your contribution limit for 2007 will generally be
the lesser of two amounts.
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Your contribution limit for 2007: |
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$5,000. |
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Or your taxable
compensation for the year. |
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Taxable compensation includes wages, salaries, commissions, self-employment
income (including self-employment income from a partnership), alimony
and separate maintenance payments. Taxable compensation does not
include interest and dividends, deferred compensation, or pension
and annuity income.
An excess contribution results in a 6-percent excise tax for each
year that the excess contribution exists. To avoid the excise tax,
you need to withdraw the funds from the Roth IRA by the due date
of your 2007 tax return and include in your 2007 income any earnings
on the contribution. If you notify the IRA custodian of the excess
contribution, he or she will guide you through the process of withdrawal.
Alternatively, you
may want to consider getting a job for 2007.
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