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May 10, 2017

ROTH IRA CHECK-UP AFTER TAX FILING DUE DATE: Correcting Roth IRA Excess Contributions

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By staff

Individuals may contribute to a Roth IRA only if their modified adjusted gross income (MAGI)s do not exceed a certain amount. See table here.

If you made a contribution to a Roth IRA for the year and your MAGI exceed the limit (based on your tax filing status), your Roth IRA contribution is an ‘excess contribution’.

If such is the case, you must either: recharacterize the excess contribution to a traditional IRA – which can be done only if you are under age 70½ as of  the end of the year for which the contribution was made, or distribute the amount as a ‘return of excess contribution’

Whichever option you choose, it must be done by your tax filing due date, plus extensions.

If you filed your tax return by the due date, you received an automatic 6-months extension to perform either the recharacterization or the return of excess contribution. Failure to do either by the deadline will result in you owing the IRS a 6% excise tax for every year the amount remains in the Roth IRA as an excess contribution.

Note: An excess Roth IRA contribution that remains in your Roth IRA after the deadline automatically becomes a Roth IRA contribution for the following year, and continues to roll over to future years until the amount is no longer an excess.

Please contact your financial or tax advisor for assistance with determining whether your Roth IRA contribution is an excess contribution, and if so, how you should proceed.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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