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JULY 1, 2019

What happens if I go over my IRA contribution limit?

Answered by
Debra Greenberg
Director, Retirement & Personal Wealth Solutions, Bank of America
If you contribute more than the IRA or Roth IRA contribution limit, the tax laws impose a 6% excise tax per year on the excess amount as long as it remains in the account. Generally, for 2019 and 2020, the annual contribution limit is a maximum of $6,000, or $7,000 if you're 50 or older; however, for Roth IRA contributions, your modified adjusted gross income ("MAGI") may reduce or eliminate this limit.
The IRS imposes a 6% tax penalty on the excess amount for each year it remains in the IRA.
Going over the limit is definitely something to watch out for, because it can happen easily enough: Perhaps you simply miscalculate, or your contributions to a Roth IRA become ineligible because your MAGI for the year has exceeded the tax law limits. (For 2020, your contributions to a Roth IRA will be limited or ineligible if your MAGI is more than $124,000 ($122,000 for 2019) for singles or $196,000 ($193,000 for 2019) 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.
If you discover you've contributed too much before filing your tax return, you can:
  • Withdraw the excess contribution and any income it has earned to avoid the 6% excise tax. You won't owe any additional tax on the contribution you've taken out, but you may owe federal income tax on the earnings and an additional 10% on the earnings if you are under age 59½. State taxes may also apply.
If you discover you've contributed too much after filing your tax return but within six months after your tax return filing deadline (without extensions), which is typically October 15th:
  • Withdraw the excess contribution and earnings on that contribution and file an amended tax return by October 15th. The earnings portion of the distribution will be subject to taxes as described above.
If you discover you've contributed too much after the October 15th deadline described above:
  • You can distribute the earnings portion of the excess amount and carry the principal amount of excess contributions forward as a contribution for that subsequent year. Just remember to reduce your contribution by the carry forward amount that year, or you might end up exceeding the limit again. Note, however, that while the carry forward approach allows you to avoid the 6% excise tax on the excess amount in subsequent years — you will still incur the excise tax for the year of contribution.
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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Merrill, its affiliates, and financial advisors do not 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 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 our Rollover IRA page or call a Merrill rollover specialist at 888.637.3343 for more information about your choices.
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