Hi,

I'm doing my wife's taxes for 2004 (we live in New York City) and she worked part-time through the year earning roughly $38,000. She contributed the max to her ROTH IRA which she opened on January 1, 2004.

Turbo Tax is telling us over and over that we have "overcontributed" to the ROTH and must take out the entire $3,000. I cannot for the life of me figure out why.

I am self-employed and itemize deductions. Therefore, my wife must itemize her deductions also even though we file separately. Her only income was this part-time income and we ahve a full W2 and everything.

Any thoughts?

It is because you file separate returns. Since her AGI is over 10,000, she cannot contribute to a ROTH. The exception would be if you are married an live apart for the entire taxable year, which doesn't appear to be the case here.

See 1.408A-3, Q&A-3.

You can see that IRS Regulation here.
http://ecfr.gpoaccess.gov/cgi/t/text/text-.../26cfrv5_02.tpl

I hope you are also running "filing jointly" as one of your options. NYC has a lot of unique tax issues, and your self-employment covers a wide range of possible incomes. But, filing separately is what is causing the issue.

As a self employed person, you have many options for retirement investment plans. While they don't offer the tax free back end of Roths, you can earmark more money. Consult your tax preparer or accountant if you are not aware of the various options.