The Eliot Rose Blog
Avoid This Costly Tax Mistake!
Added 02/14/2017 by Jason Siperstein, CFA, CFP
As we enter tax season, we are approaching the time of year when most contributions are made to traditional and Roth IRAs. However, there are limits on how much you can contribute in each year. Unfortunately, your custodian doesn’t prompt you with a warning message on any overage! So, it’s important to keep track either on your own, with your accountant, or your financial advisor.
That maximum dollar amount that individuals can contribute to their IRA for 2017 is $5,500. If you are over 50, you have a $1,000 catch-up contribution for a total contribution of $6,500. Any contributions over the limit are hit with a 6% penalty each year until they are fixed! You can fix this mistake without penatly by withdrawing the overage (plus associated earnings) by October 15th of the year after the year the excess contribution was made. If you are past this deadline, unfortunately you need to face the 6% hit each year until it is corrected.
Bottom-line – develop a financial plan to save for your future and pay attention so you can avoid this costly tax mistake!