Roth IRA excess and capital gains

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Topic Author
x3sphere
Posts: 10
Joined: Sat Aug 29, 2020 3:31 pm

Roth IRA excess and capital gains

Post by x3sphere »

So, I normally contribute $6k to my Roth IRA at the start of the year as my income is around 60K. However, this year, I ended up making some huge gains in crypto which will push me well over the Roth IRA limit. I think so anyway, the capital gains affect my MAGI right? If that's the case I'll be well over 200K.

How simple is correcting this? I see Vanguard has a form on their website to withdraw the excess, do I just have to fill that out and then I'm done? Anything I will need to report on taxes for this year if I do it before the end of the year?

Thanks.
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WoodSpinner
Posts: 1979
Joined: Mon Feb 27, 2017 1:15 pm

Re: Roth IRA excess and capital gains

Post by WoodSpinner »

OP,

Do you have an existing IRA with before tax money?

If not you can create an IRA account and recharacterize the excess Roth contribution and earnings to the IRA and then convert the contribution (not taxable) and earnings (taxable) using a Backdoor Roth approach.

WoodSpinner
Topic Author
x3sphere
Posts: 10
Joined: Sat Aug 29, 2020 3:31 pm

Re: Roth IRA excess and capital gains

Post by x3sphere »

WoodSpinner wrote: Thu May 06, 2021 2:49 pm OP,

Do you have an existing IRA with before tax money?

If not you can create an IRA account and recharacterize the excess Roth contribution and earnings to the IRA and then convert the contribution (not taxable) and earnings (taxable) using a Backdoor Roth approach.

WoodSpinner
I do. I'm self employed so I have a SEP IRA, I've already contributed the max to it for this year though (based on my income). My only option is probably to withdraw the funds from the Roth right?
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WoodSpinner
Posts: 1979
Joined: Mon Feb 27, 2017 1:15 pm

Re: Roth IRA excess and capital gains

Post by WoodSpinner »

OP,

I think that is correct. The SEP-IRA is counted for pro-ration.

WoodSpinner
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