The Internal Revenue Service (IRS) limits IRA contributions to $5,000 if you’re under age 50 or $6,000 if you’re over age 50. Maximum contribution amounts may be limited by your income and filing status.
If you contribute more than you’re allowed, the IRS can penalize you with a 6 percent tax on the extra contribution. You will continue to be penalized 6 percent until you correct the excess contribution.
The excess contribution tax applies to both the traditional IRA and the Roth IRA. The traditional IRA allows you to make pre-tax contributions, while post-tax contributions are made to a Roth IRA.
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You can avoid the excess contribution tax if you withdraw the extra contribution and any earnings before your tax return is due. You may also be able to avoid the tax by applying the excess to next year’s contribution.
If you don’t add the penalty in your taxes using Form 5329, the IRS will send you a bill for what you owe.
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