Yes, you are not allowed to over contribute to an IRA.
If you already made a contribution and you're above the modified adjusted gross income (AGI) limits, it's considered to be an excess contribution and is subject to penalties.
Retirement can be a complex area of your tax return. There are several options available for correcting excess contributions. However, not every option is applicable to each situation. Therefore, we recommend you consult with your financial advisor before taking any of the steps below to determine which option is the most appropriate for your specific situation.
The options available include:
1. Pay the penalty for an excess contribution. You'll need to pay a 6% penalty each year that the excess remains in your Roth plan. If a Roth IRA contribution is allowed next year (or any future year), excess contributions can be applied up to the contribution limit for that year and no longer subject to the penalty.
2. Withdraw the excess (including any money you earned on it) before the filing deadline for your tax return. If you do this, you'll need to correct the amount you entered in TurboTax as your contribution.
3. Recharacterize your Roth IRA contribution to be a traditional IRA contribution. That means that you instruct the account trustee to move the money to a traditional IRA and treat it as if that's where you made the original contribution.
Of course, if you haven't yet made your 2017 contribution (you have until the due date of your return, including extensions, to make IRA contributions) you can avoid this situation by simply not making the contribution.
Yes, you are not allowed to over contribute to an IRA.
If you already made a contribution and you're above the modified adjusted gross income (AGI) limits, it's considered to be an excess contribution and is subject to penalties.
Retirement can be a complex area of your tax return. There are several options available for correcting excess contributions. However, not every option is applicable to each situation. Therefore, we recommend you consult with your financial advisor before taking any of the steps below to determine which option is the most appropriate for your specific situation.
The options available include:
1. Pay the penalty for an excess contribution. You'll need to pay a 6% penalty each year that the excess remains in your Roth plan. If a Roth IRA contribution is allowed next year (or any future year), excess contributions can be applied up to the contribution limit for that year and no longer subject to the penalty.
2. Withdraw the excess (including any money you earned on it) before the filing deadline for your tax return. If you do this, you'll need to correct the amount you entered in TurboTax as your contribution.
3. Recharacterize your Roth IRA contribution to be a traditional IRA contribution. That means that you instruct the account trustee to move the money to a traditional IRA and treat it as if that's where you made the original contribution.
Of course, if you haven't yet made your 2017 contribution (you have until the due date of your return, including extensions, to make IRA contributions) you can avoid this situation by simply not making the contribution.