Occasionally, some of my readers send me great questions on personal finance topics, and I enjoy answering them. Sometimes they’re easy, and sometimes they’re hard. The great thing about questions is that everybody benefits, because nobody knows everything.
I recently got a great question from one of my readers about Roth IRAs, so I thought it’d be good to share.
Hi, my question concerning the Roth IRA is that let’s say for 2007 I had a job and so was able to invest 3000 dollars into my Roth IRA account in the form of stocks. Now 2008 hits, and I’m out of a job and withdraw 50% of the stocks. Later on, however, I change my mind and decide I want to put the money I withdrew back into the account. Am I able to do that if I don’t hold a job since I don’t have an income for that year?
It all depends on the timing.
You can contribute to a Roth IRA for a specific tax year starting on January 1st of that year, and the contribution deadline is your tax filing deadline (in general April 15 of the following year). You can’t make contributions after that date even if you file for an income tax extension.
So in the scenario described above, if you change your mind before April 15, 2008, then you’re fine. You could put the money back into your Roth by specifying that the contribution is for the 2007 tax year. After April 15, 2008, you wouldn’t be able to put that money back in unless you made some income in 2008.
Have a question? Ask it in the comments or send it to me, and I’ll use it in future mailbags.
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Nice response, I kind of was and am now in a similar situation. I had a roth IRA and the company was matching at 3%. Then lost my job and now have a new one but no type of IRA with this job. How can I find out more about my existing IRA account and if I can contribute more funds to it?
oh yeah man, reader mail is awesome! feels good to help people out….good post
Craig: Are you referring to a Roth 401(k)? Roth IRAs are individual accounts, not company sponsored plans, so if you were getting a company match, then it was probably a Roth 401(k).
Typically, the best option is to roll your 401(k) into a Rollover IRA, because it allows your capital to continue compounding tax-deferred while giving you maximum control over asset allocation (i.e. you are no longer limited to the investments offered by the 401k plan provider).
The process is a little complicated, but this article does a good job of explaining how it works. Also, here is an actual experience of someone rolling over their 401(k).
@broke grad student I’m pretty sure it was a simple IRA. To be honest, not really sure what the difference is between them all. Just kind of went with the flow. Thanks for the link. going to be reading it and see how it can help.
Ok, a SIMPLE IRA makes sense, because employers can contribute to these accounts too.
I’m not very familiar with SIMPLE IRAs, but the name is definitely ironic. I was able to find some interesting info on them with some quick research. Unlike a 401(k), a SIMPLE IRA cannot be rolled over to a Traditional IRA without a waiting period (two years from the date the first deposit is made into a SIMPLE IRA).