Hi, if I contributed $6,000 to my Roth IRA in June 2020 can I contribute another $6,000 in January 2021 without it thinking that I exceeded my limit for 2020 tax yr?

[dahiana]

I am unsure because you can contribute to your Roth IRA and have it count as a 2020 contribution all the way until April 15th, 2021. Therefore, if I contribute $6,000 in 2020 and another $6,000 before April 15, 2021, will it think I contributed $12,000 for 2020?

[macuser_22]

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@dahiana wrote:
I am unsure because you can contribute to your Roth IRA and have it count as a 2020 contribution all the way until April 15th, 2021. Therefore, if I contribute $6,000 in 2020 and another $6,000 before April 15, 2021, will it think I contributed $12,000 for 2020?

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You can only contribute a maximum of $6,000 for 2020 if you are under age 50 ($7,000 if older).  It makes no difference if it was contributed in 2020 or 2021 *for 2020* - it's still a total of $6,000 for 2020.   In 2021 you can make a 2021 (not 2020) new contribution if you have sufficient taxable compensation - that would be a 2021 contribution  independent of any 2020 contribution.

[fanfare · Accepted solution]

In the early months, you tell your custodian to which year you want your contribution applied.

[chris1kg]

I think theoretically (kind of extreme) you can contribute 6000 on Dec 31 2020 and another 6000 on Jan 1 2021 without problem. 

I also believe the trustee (Fidelity etc.) system will easily figure out, in other words, their system will prohibit you from doing so if indeed disallowed.

[macuser_22]

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@chris1kg wrote:

I think theoretically (kind of extreme) you can contribute 6000 on Dec 31 2020 and another 6000 on Jan 1 2021 without problem. 

I also believe the trustee (Fidelity etc.) system will easily figure out, in other words, their system will prohibit you from doing so if indeed disallowed.

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@chris1kg - I Think you either misunderstand the question or the tax law.

You can ONLY contribute the maximum amount for any tax year, but you have until the filing date of that tax year to contribute it.   If you made a 2020 contribution *in* 2020 then that is the maximum for 2020 an you cannot contribute any more *for* 2020 in 2021.   Any 2021 contribution can only be applied to the 2021 tax year.

If you want references then refer to and read IRS Pub 590A that explains the tax law.

https://www.irs.gov/publications/p590a

(And I do not know what "Fidelity" has to do with it since we do not know the financial institution, but do  not depend of the financial institution to disallow it - often they do not check or it is a different financial institution that does not know was was done at another financial institution.)

[dahiana]

Thank you everyone for the replies so far!

I marked @fanfare 's reply as the solution because I did not know that (assuming 15 April 2021 is the deadline for the 2020 tax year), for any contributions I made from 1 Jan 2021 until before the deadline, that I could specify with my custodian/bank if I wanted it for the 2020 tax year or 2021 tax year. This solves my concern.

@chris1kg I don't think the custodian's system will completely block you from contributing the maximum. Maybe it'll give you a warning. According to the IRS, you are allowed to contribute more than the maximum, but there are consequences if you leave the extra money there and don't resolve it; for example, a 6% excise tax https://www.irs.gov/publications/p590a#en_US_2019_publink1000231028).

@macuser_22 Is there a specific location on the IRS website page that supports your statement? I did not see it there nor have ever read that before.

If you made a 2020 contribution *in* 2020 then that is the maximum for 2020 an you cannot contribute any more *for* 2020 in 2021.   Any 2021 contribution can only be applied to the 2021 tax year.

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It is assuming that if I contributed $4,000 in 2020 (and say my maximum allowed contribution is $6,000) that now my maximum changed to $4,000 and I can't add another $2,000 between 1 Jan 2021 - 15 April 2021 and apply it to my 2020 tax year. However, this is not true. My maximum allowed can't change based on what I contributed. Excess contributions are subject to penalties. Also, a 2021 contribution can be applied to the 2020 or 2021 tax year if made before the deadline. After the deadline, it can be applied to the 2021 or 2022 tax year if you have not reached your maximum for 2022 (https://www.irs.gov/publications/p590a#en_US_2019_publink1000231024). It's possible I misunderstood your statement, but that's what I gathered from it.

Ultimately, for my original question, from what I understand, I could have contributed $6,000 to my Roth IRA in June 2020, then another $6,000 in January 2021. For my January 2021 contribution, I can specify that it is for my 2021 tax year (and not an additional contribution for my 2020 tax year even though the contribution was made before the 2020 tax year deadline). 

Thank you everyone for your help!

[macuser_22]

@macuser_22 Is there a specific location on the IRS website page that supports your statement? I did not see it there nor have ever read that before.

If you made a 2020 contribution *in* 2020 then that is the maximum for 2020 an you cannot contribute any more *for* 2020 in 2021.   Any 2021 contribution can only be applied to the 2021 tax year.

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Yes, and I refered you to the publication  (590A)  https://www.irs.gov/publications/p590a, that says the limit is $6000 *for* the tax year.    If a contribution made in 2020 *for* 2020 or in 2021, before April 15 that is *for* 2020 then the total cannot exceed the maximum amount of it is an excess contribution subject to a 6% penalty that will repeat every year until removed (also explained in Pub 590A).

Also see https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-li... that says the same thing.

Also note that the term "IRA" is the aggregate total of all IRA accounts that you might have in different financial institutions.  The IRS treats all accounts as the same IRA for tax and contribution limits  - the limit applies to the total IRA and not each account.     An IRA custodian cannot know amount any other IRA accounts that you  might have with different custodians.

[fanfare]

you can always overcontribute if you are willing to pay the 6 % per year penalty. If you "know something" about some stock , this can pay off, since you can keep the gains in the Roth after a year has passed.

[chris1kg]

fanfare, sounds a very interesting idea, but I'm not following completely--what is "after a year has passed" about?

I know there are 2 kinds of different 5-years rule, but I would like to know what you meant above.

THanks.