Members of the Maryland Association of Certified Public...

Tax questions

March 24, 1998

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.

Q: If you open a Roth IRA, but during the same year you find out your adjusted gross income exceeds the qualifying thresholds, what can you do? Can you convert it to a regular IRA or do you have any options? Are you penalized?

A: Taxpayers are not eligible for a Roth IRA until tax year 1998. A taxpayer can roll over a regular IRA into a Roth IRA. There have been no regulations issued regarding the rollover of a Roth IRA to a regular IRA. Nothing in the new tax law itself seems to permit this. Also, since the income limits are substantially less for a qualifying deductible contribution to a regular IRA, there would be no deduction allowed for the contribution to a regular IRA. However, a taxpayer can still make a contribution to a regular IRA and receive the benefits of not being taxed until distributions are taken, but no deduction would be allowed. Under a regular IRA, a taxpayer whose contributions exceed the limit can make tax-free withdrawal of the excess before April 15 of the year following the tax year (April 15, 1998 for 1997). The withdrawal must be accompanied by the earnings of the excess contribution. The earnings would be taxable. I presume that the same will be allowed for Roth IRAs in cases where the withdrawal is made due to the taxpayer's income being too high to allow a contribution. In that case, the amount can be contributed to a regular IRA, but the amount would not be deductible.

Harold Goedde, CPA, Morgan State University The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

To ask a tax question, call Sundial, The Sun's telephone information service, at (410) 783-1800. Call 268-7736 in Anne Arundel County, 836-5028 in Harford County, 848-0338 in Carroll County. Using a Touch-Tone phone, punch in the four-digit code 6225 after the greeting. You can also submit questions by e-mail through The Sun's Web site: www.sunspot.net/tax.

Selected questions will be answered in the Business section. No questions will be answered personally.

Pub Date: 3/24/98

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