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Ask Bob: How To Fix Excess IRA Contributions

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Did you contribute more into your traditional or Roth IRA than is legally allowed? That’s the situation facing an “Ask Bob” reader who wanted to know how to fix an excess Roth IRA contribution.

First, it’s worth noting the IRA contribution limits. For 2019, your total contributions to all of your traditional and Roth IRAs cannot be more than:

  • $6,000 ($7,000 if you're age 50 or older), or
  • your taxable compensation for the year, if your compensation was less than this dollar limit.

But your eligibility to contribute to a Roth IRA is based on your income level.

If, for instance, your filing status in 2019 was married filing jointly, as was the case with our Ask Bob reader, and your modified adjusted gross income (MAGI) was less than $193,000 that you could have contributed up to the limit. But if your MAGI was equal to or greater than $193,000 but less than $203,000, you could have contributed a reduced amount. And if your MAGI was equal to or greater than $203,000, then you could have contributed zero.

According to Sarah Brenner, director of retirement education at Ed Slott & Company, an excess IRA contribution occurs if you:

  • Contribute more than the contribution limit.
  • Make a regular IRA contribution for 2019, or earlier, to a traditional IRA at age 70½ or older.
  • Make an improper rollover contribution to an IRA.

According to Brenner, excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA.

According to the IRS, the tax can't be more than 6% of the combined value of all your IRAs as of the end of the tax year. To avoid the excess contributions tax, the IRS recommends taking the following steps:

  • withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
  • withdraw any income earned on the excess contribution.

See Publication 590-A for certain conditions that may allow you to avoid including withdrawals of excess contributions in your gross income.

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