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.
As always, if you have any questions or would like to learn more, please contact Steve Shane at email@example.com or .
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Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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