Magazine article Medical Economics

Taxpayers Get More Time to Reverse Invalid Ones

Magazine article Medical Economics

Taxpayers Get More Time to Reverse Invalid Ones

Article excerpt

ROTH IRAs

If you earned too much last year to contribute to a Roth IRA, but unknowingly opened one anyhow, the IRS has an early Christmas present for you. It will give you until year-end to reverse your mistake without incurring any penalties. The original deadline was Oct. 15. The agency is extending the same courtesy to taxpayers who erroneously converted a traditional IRA to a Roth.

The IRS attributes its largesse to the "newness of the Roth IRA and problems that taxpayers have had in applying its rules and limitations."

By law, married couples who earn more than $160,000 cannot contribute to a Roth, and if they earn between $150,000 and $160,000, each spouse can contribute only a prorated portion of the $2,000 limit. Couples and single filers earning more than $100,000 cannot convert a traditional IRA to a Roth.

High-income taxpayers who nonetheless made the conversion in 1998 and were younger than 59 1/2 at the time now face a 10 percent excise tax on the entire conversion amount. …

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