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RETIREMENT
JUNE 1, 2018

What Happens If I Go Over My IRA Contribution Limit?

Answered by
Debra Greenberg
Director, Personal Retirement Solutions Group
If you contribute more than the traditional IRA or Roth IRA contribution limit (for 2018, that's $5,500 per year; $6,500 if you're 50 or older at any time during the calendar year), the IRS imposes a 6% tax penalty on the excess amount for each year it remains in the IRA.
The IRS imposes a 6% tax penalty on the excess amount for each year it remains in the IRA.
It's definitely something to watch out for, because going over the limit can happen easily enough: Perhaps you simply miscalculate, or your contributions to a Roth IRA become ineligible because your income for the year has exceeded the IRS limits. (Your eligibility to contribute to a Roth IRA is based on your modified adjusted gross income, or MAGI. For 2018, your contributions will be limited or ineligible if your MAGI is more than $120,000 for singles or $189,000 for married couples filing jointly.)
It's especially easy for you to go over the limit if you are funding both a traditional and a Roth IRA.

What can I do if I've exceeded my IRA contribution limit?

"If you've accidentally overfunded an IRA, there's no need to panic," says Debra Greenberg, a director in the Personal Retirement Solutions Group at Bank of America Merrill Lynch. Before filing your taxes and before the due date for filing your tax return (including extensions), you can:
  • Withdraw the excess contribution and any income earned to avoid the 6% tax penalty. Note that if you're under 59½, you'll pay a one-time 10% additional tax on the early withdrawal. If you're funding both a traditional and a Roth IRA, the IRS mandates that you remove the excess from the Roth IRA first.
  • Assign the overage as a contribution for the following year. Just remember to reduce your contribution by the same amount next year, or you might end up exceeding the limit again.
How to correct excess IRA contributions before filing your taxes
If you discover you've contributed too much after filing your taxes but before the due date for filing your tax return (including extensions), you can:
  • Withdraw the excess contribution and earnings on that contribution and file an amended tax return to avoid the 6% tax penalty. Again, if you're under 59½, you'll pay a one-time 10% additional tax on the early withdrawal.
  • Carry the extra contribution forward as a contribution for the following year. As with the above example, you'll need to reduce your contribution in that following year to offset the amount you carry forward.
This can be complicated; in order to determine which approach suits your situation, consult with your tax advisor before making any moves, as there may be forms you have to file with the IRS when you are reconciling.
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Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
You have choices about what to do with your employer-sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over an employer-sponsored plan account from your old job to your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and different types of protection from creditors and legal judgments. These are complex choices and should be considered with care. Visit http://www.merrilledge.com/retirement/rollover-ira or call a Merrill Edge® rollover specialist at 888.637.3343 for more information about your choices.
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