My daughter made a Roth IRA deposit for 2014. Now she's divorcing or at least not talking enough to do taxes married filing jointly. When she filed out the forms, (married filing separately) she tells me she can't have a Roth if she made more than $10,000. It make no sense to me filling jointly they can make up to $191,000. but separately only $10,000.
Can anyone explain where we are wrong or why the rules are such.
Thanks, Mike
Without checking, your description sounds correct. A similar huge difference applies when determining taxable amount of Soc. Sec. benefits MFJ vs. MFS.
So to the second part of your question -- why? Because Congress said so. Their reasoning is probably lost in the mists of time, you'd have to go back to when the MFJ and MFS statuses were first created. But almost everywhere in the tax code, the MFJ filer gets rewarded heavily compared to MFS. There are a few exceptions.
Just had a thought, maybe it's economy of scale - it's easier to process two taxpayers on one combined return than it is to process two separate returns which have to be cross-checked (in theory) against each other to avoid duplication or omission. Plus, having two people on the hook for the balance due is better than one.
Ok since she made the 2014 Roth deposit this year, what does she need to do to correct the situation and avoid paying any penalties?
Mikek
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This is called an "excess contribution". IRS Pub 590-A explains your choices, basically the contribution can be withdrawn, applied to a a later year, or re-characterized as a Trad. IRA contribution (which may or may not be deductible. See the pub for details. The IRA custodian will need to be notified as to what she wants to do.
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