Question: What is the limit for regular IRA contributions and how do I correct an excess contribution?
Answer: Regular contributions to an IRA are limited to the lesser of 100% of eligible compensation or $6,000 for the year (an additional catch-up contribution of $1,000 is permitted for those age 50 or above). Therefore, regardless of the number of IRA accounts that a person owns, the aggregate regular IRA contributions for the year cannot exceed this amount.
A common ‘excess contribution’ is an individual exceeding the contribution limit by contributing the maximum amount to separate IRAs. For example, individuals who attempt to fund both a Traditional and a Roth IRA. Such individuals might contribute $6,000 to the Traditional IRA and another $6,000 to the Roth IRA, resulting in an excess contribution of $6,000.
What to do to correct an Excess Contribution: An excess IRA contribution must be distributed by the IRA owner’s tax filing due date, plus extensions – usually by October 15th of the year following the year of the excess contribution to avoid penalties. An excess contribution that is not corrected by this deadline is subject to a 6% excise tax for every year that the excess amount remains in the IRA. Such distribution must include any net income attributable to the excess contribution.
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