Excess IRA contribution

Forum|Forum|4 years ago
August 17, 2021
2 replies
28 views

In March 2021 I added $5000 to my traditional IRA. I intended $3500 of it to be a 2021 contribution. But later (after filing taxes) I received Form 5498 stating $5000 as a 2020 contribution. This makes me $3500 in excess contributions because of my Roth IRA. So I filed a corrected 1040 using Turbotax and have a penalty. I am going to withdraw excess from my IRA. My question is since I made the contribution in March 2021, cannot I just ask IRA company to change $3500 Excess from 2020 and keep it in the same account as a 2021 contribution, then file another corrected 1040 and use only $1500? I have created a quite a mess and will appreciate help on the best way to fix it.

DanS4

Bsch4477

Level 15

Keep it simple. Withdrawal the excess contribution and pay the associated tax liability. Then fund your 2021 IRA for whatever amount you wish that you qualify for.

Dans4Author

Level 2

Thank you for the reply. But this incurs a ~$230 penalty that I would prefer to avoid. Since I contributed the money in March 2021, if I have it reclassified as 2021 contribution and file a corrected 1040, I presume I would not have the penalty. Although paying is easier, I prefer to avoid paying tax or penalty that I could avoid. Any advice if my plan is correct, or if I missing some rule?

Dans4

Bsch4477

Level 15

If you discover it after you've filed your tax return

You can either:

Remove the excess within 6 months and file an amended return by October 15—if eligible, you can also remove the excess plus your earnings by this date.
Remove the excess once discovered, even after October 15. You'll need to reduce next year's contributions by the excess amount. For example, if your limit is $6,000 and you exceed it by $1,500 in the current year, you can offset the excess by limiting your contributions to $4,500 the following year.

Mike9241

Level 15

"cannot I just ask IRA company to change $3500 Excess from 2020 and keep it in the same account as a 2021 contribution". call them and find out.

Mike9241

Critter-3

Level 15

When you made the contribution you had to fill in paperwork indicating the year's the contribution was to be applied to so did you fill in the paperwork correctly and did the bank make the wrong contribution to the wrong year the IRS should get them to correct their error.