Too Much Money for a Roth

If you came of age at some point since the late nineties, you likely grew up hearing about the importance of contributing to a Roth IRA. You may not have understood why, but you knew it was a good practice. And although Roths are not the answer to every financial problem (as they are sometimes made out to be), they are still pretty great.

Roth IRAs came to life under the Taxpayer Relief Act of 1997 as the brainchild of Senator William Roth of Delaware. Currently, you can contribute up to $5,500 per year, none of which is tax-deductible, but the earnings grow tax-free and withdrawals are tax-exempt after you reach the age of 59 ½. So if you are young, Roths are the way to go.

But a funny thing happens after you work for a while—you start to make more money. And although you may have wisely made a habit of fully funding a Roth IRA each year, you may also come to a year when you make too much money to contribute [enter Biggie Smalls joke here].

That’s right. If you’re married and have combined income of over $189,000 or single with income over $120,000, your Roth contribution is greatly limited or reduced to zero. Additionally, if you are married but file separately, your contributions are limited if your income is over just $10,000.

So what happens if you max out your Roth even though you made too much money? There’s a fix— contact the financial institution that manages your account and have them “recharacterize” your contribution from Roth to traditional, which may involve opening a new account. Otherwise, there’s a 6% excise tax each year it’s left in the account.

Making too much money is a good problem to have, but you definitely need to be aware of this common Roth IRA trap.


Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at