Transition Tax Topics: Watch The Roth Thumbnail

April 20, 2020

Transition Tax Topics: Watch The Roth

Welcome to Curt's Chalk Talk, transition tax topics series. I'm Curt Sheldon with C.L. Sheldon and Company and today we're gonna talk about Roth IRAs.

Now, a lot of officers contribute to their Roth while they're on active duty and that's a great idea, but it may not be such a good idea after you retire and that has to do with the fact that not everyone can contribute to a Roth IRA.

There are income limits. So, if your adjusted gross income exceeds $206,000 in 2020, you cannot contribute any money to a Roth IRA and if exceeds $196,000, you can only contribute a portion of that annual limit of $6,000. Now, if you're single, you can contribute up to $139,000 and then you can't contribute anything and the phase out starts at $124,000.

So what do you do if you found out you made contributions and you weren't eligible? Well, you want to reverse those contributions and the earnings on them before you file your tax return for that year and if you realize that it's already passed, get the funds out as soon as possible because if you leave the funds in there they're subject to a 6% excise tax and that's per year. So if the IRS finds out about it 10 years later, you'd be looking at a 60% tax on those contributions.

Are you concerned about your finances as you make the transition from active duty to the civilian world? Well, we've got a financial checklist that you can download for free at www.clsheldon.com/tax. Again, that financial checklist for retirement at www.clsheldon.com/tax.

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