Legal Blog
The Weekly Scenario: Correcting An Excess Contribution and Regular IRA Contributions Limits
Question: What is the limit for regular IRA contributions and how do I correct an excess contribution?
Answer: Regular contributions to an IRA are limited to the lesser of 100% of eligible compensation or $6,000 for the year (an additional catch-up contribution of $1,000 is permitted for those age 50 or above). Therefore, regardless of the number of IRA accounts that a person owns, the aggregate regular IRA contributions for the year cannot exceed this amount.
A common ‘excess contribution’ is an individual exceeding the contribution limit by contributing the maximum amount to separate IRAs. For example, individuals who attempt to fund both a Traditional and a Roth IRA. Such individuals might contribute $6,000 to the Traditional IRA and another $6,000 to the Roth IRA, resulting in an excess contribution of $6,000.
What to do to correct an Excess Contribution: An excess IRA contribution must be distributed by the IRA owner’s tax filing due date, plus extensions – usually by October 15th of the year following the year of the excess contribution to avoid penalties. An excess contribution that is not corrected by this deadline is subject to a 6% excise tax for every year that the excess amount remains in the IRA. Such distribution must include any net income attributable to the excess contribution.
As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or .
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing, full-service law firms in the mid-Atlantic region. With over 185 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well positioned to meet the needs of dynamic businesses and the people who own and operate them. Our twelve offices serve individual and corporate clients along the I95 corridor in the Virginia, Washington, DC, Maryland, Delaware, Pennsylvania, New Jersey, and New York City regions. At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we consistently maintain our clients’ confidence by remaining focused on furthering their objectives and achieving their goals in an efficient manner. Trust, knowledge, confidence—in a partner, that’s perfect.
Find out why Offit Kurman is The Better Way to protect your business, your assets and your family by connecting via our Blog, Facebook, Twitter, Instagram, YouTube, and LinkedIn pages. You can also sign up to receive Law Matters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
MARYLAND | PENNSYLVANIA | VIRGINIA| NEW JERSEY | NEW YORK | DELAWARE | WASHINGTON, DC
