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. What do I do if I contributed too much Roth contributions?If you discover the contribution error prior to filing your tax return, the most common fix is to withdraw the excess contribution amount plus EARNINGS by your tax filing deadline, April 18th. Custodians typically have a special form for removing excess contributions from your Roth IRA that you will need to complete.
Can you reverse a Roth IRA contribution?For tax years before 2018, you have until October 15th of the year after making a conversion to reverse it and avoid the related tax liability. Beginning with the 2018 tax year, undoing Roth conversions are no longer permitted.
|