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What If I Contributed More to My IRA Than Is Allowed?

Estimated reading time: 2 minutes, 16 seconds

If you’ve contributed more to an IRA than is allowed by IRS rules, then you’ve made what’s called an excess contribution. As a result, you may be subject to additional taxes and penalties. However, you may have time to correct the excess contribution. And depending on how and when the correction is made, certain taxes and penalties may not apply.

If you filed your tax return on time, you have options when it comes to excess contributions. 

If you filed your return by the due date (including extensions), you would receive an automatic six-month extension to remove excess contributions and any earnings. This means the excess should be distributed generally by October 15.

There are two types of excess contributions: deemed and true excesses.

excess contributions

The first of these is pretty straightforward. A deemed excess occurs when you remove any eligible regular or catch-up contribution for the current tax year by deeming it as an excess. You can remove the contribution and earnings by the tax return due date, plus extensions, for the contribution year. However, you may not remove any deemed excess using this rule after the tax return due date (including extensions).

There are multiple ways in which a true excess would occur. First, it would occur when you contribute more than your IRA’s annual contribution limit. It would also occur if you contribute more than your earned income for the contribution year. If you hold a Traditional IRA, a contribution for the year in which you become age 70 ½ or older would also result in a true excess contribution.

Additionally, if you make Roth contributions and your modified adjusted gross income (MAGI) exceeds the permissible limit, then this would also result in a true excess contribution. Also, keep in mind that Roth conversions performed incorrectly could also lead to an excess contribution. Any invalid conversion or failed contribution results in regular Roth IRA contributions. Since the “undoing” of the original contribution would be reversed, this may then exceed the annual contribution limit.

Also, excess contributions aren’t limited to your contributions alone. These could be the result of spousal contributions, employer contributions or improper rollovers as well.

Ultimately, you should speak with your tax professional before proceeding with the removal of any excess contribution. He or she can assist with required paperwork, earnings calculations, determining which contributions to remove and other important decisions. Also, in some situations, you may be subject to a 6% excise tax and/or a 10% early distribution penalty tax.

After discussing it further with your tax professional, you can begin the removal of excess contributions by completing our Distribution Request form. Contact the Kingdom Trust staff for any assistance in completing the document.

Please reference IRS Publication 590-A for more on excess contributions.

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