Paid too much into your traditional or Roth individual retirement account? Don't panic — it’s not too late to walk back an excess contribution to your IRA. But it’s less trouble if you do it before the April tax-filing deadline. Show
“It’s a very common problem,” says Denise Appleby of Appleby Retirement Consulting, an Atlanta firm that advises companies on administering IRAs and employer retirement plans. The annual limit on contributions to an IRA is $6,000 in 2022 ($7,000 if age 50 or older) and $6,500 in 2023 ($7,500 if age 50 and older). It’s important to act if you contribute too much, because you must pay a 6% penalty tax on the excess amount every year it goes uncorrected, Appleby says. Here’s what you should do, and what you need to know to prevent future excess contributions. If you've contributed too much to an IRA, fix it before filing taxes
Discovered excess IRA contributions after filing taxes? Do thisYou have a few options if you discover an excess contribution after you file your taxes:
Common reasons for excess IRA contributionsTo help you avoid this problem in the future, know the main culprits for excess IRA contributions:
Overcontributions to your IRA are a nuisance, but more of a speed bump than a roadblock on your way toward saving for retirement. How does IRS track Roth IRA contributions?Roth IRA contributions do not go anywhere on the tax return so they often are not tracked, except on the monthly Roth IRA account statements or on the annual tax reporting Form 5498, IRA Contribution Information. Let clients and their tax advisers know that Roth IRA contributions should be entered on the tax program.
Does IRS catch excess Roth IRA contributions?Be aware you'll have to pay a 6% penalty each year until the excess is absorbed or corrected. Note: If you contributed to a Roth and traditional IRA in the same tax year and your total contribution went over the allowable IRA amount, IRS regulations require you to remove the excess from the Roth IRA first.
What happens if I accidentally contributed too much to my Roth IRA?You can withdraw the money, recharacterize the Roth IRA as a traditional IRA, or apply your excess contribution to next year's Roth. You will face a 6% tax penalty every year until you remedy the situation.
How do I correct excess Roth IRA contributions?You have a few options if you discover an excess contribution after you file your taxes:. Contact your plan administrator and file an amended tax return. ... . Carry the excess forward to the new tax year. ... . Roth IRA option: Move the excess to a traditional IRA. ... . Do nothing and pay 6% on the excess every year.. |