Traditional IRA

Posts Tagged ‘excess ira contribution’

What is an excess IRA contribution?

Generally, an excess IRA contribution is an IRA contribution that is more than the lesser of: 

• Taxable Compensation for the year, or
• For 2006: $4,000 ($5000 if 50 and older).

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What is the deadline to remove an excess IRA contribution?

The deadline to remove an excess IRA contribution to avoid the 6% excise penalty tax is 

• the individual’s Federal income tax filing due date (typically April 15), including extensions.

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What if the excess IRA contribution is not removed? What is the excess IRA contribution penalty?

If the individual timely filed his or her income tax return without withdrawing the excess IRA contribution, the individual will have an additional 6 months from the due date of the return (typically October 15) to remove the excess IRA contribution and avoid the 6% penalty. 

If the individual withdraws the excess IRA contribution during this period, he or she would have to file Form 1040X (Amended U.S. Individual Income Tax Return) and indicate “filed pursuant to Section 301.9100-2″ on the amended return. 

The deadline to remove an excess IRA contribution corresponds with the year in which the excess IRA contribution was made, not the year for which the IRA contribution was intended. 

For example, the deadline to remove an excess contribution made in February 2005, designated for calendar year 2004, is the deadline for filing the individual’s 2004 Federal income tax return (April 15, 2005), including extensions. 

Note that this deadline is different from the deadline for IRA recharacterization. The deadline to recharacterize the IRA contribution in this example is the deadline for filing the individual’s 2004 Federal income tax return (April 15, 2005), including extensions.