How to Correct Excess Retirement Plan Contributions

Reporter: Rebecca Lake

Publication: US News


Deadline: May 11, 2017 11:00 pm

If you contributed too much to your retirement plan for the year, you have until October 15th to amend your return and correct the mistake. The alternative is to carry the excess contribution over and pay a penalty until it self-corrects. This post will cover what investors need to consider when they’ve overfunded their retirement plan. How costly can the penalty be for carrying forward excess contributions? How does that compare to paying taxes and possibly an early withdrawal penalty if you opt to withdraw the excess contribution instead? Is there a scenario where carrying contributions forward might make more sense? For example, if amending your return is going to result in owing more taxes? Are there are any special rules that apply if an investor has contributed to both a traditional and Roth IRA in the same year? How can investors shape their contribution plans moving forward to ensure that they don’t repeat their mistake? Are there are any special considerations for someone who’s self-employed and is contributing to a SEP, SIMPLE or Solo 401(k) plan?

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