Excess contribution

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Excess contribution

The amount by which an IRA contribution exceeds the allowable limits. If an excess contribution is not properly corrected, a 6% IRS penalty applies.

Excess Contribution

Contributions made to an IRA over and above the maximum allowable contribution. One must withdraw excess contributions from the IRA in the current tax year or be subject to a 6% excise tax. Excess contributions are banned in order to remove the incentive for excessive tax avoidance.

Excess contribution.

An excess contribution occurs when you put more money into your individual retirement account (IRA) than the law allows.

You can withdraw the excess amount plus earnings by the date your tax return is due for the year, including extensions. You'll owe tax on the excess in the year you deposited it in your account but no penalty. Earnings are taxed in the year you receive them.

If you leave the excess in the IRA, you'll owe a 6% excise tax on that amount every year it remains in the account. If you miss the deadline for taking the money out without penalty, one solution may be to contribute less the following year so that your combined contributions are less than the total for the two years.

The term excess contributions may also be used to describe after-tax contributions that employees may legally make to their employer-sponsored retirement plans. This situation may arise if your yearly contribution to the plan, based on the percentage of salary your employer permits, is less than the annual federal limit.

Finally, plan sponsors may owe a 10% tax penalty if their plans do not distribute or correct excess contributions within two and a half months after the end of the plan year.

References in periodicals archive ?
9) Distribution of excess contributions from a qualified cash or deferred arrangement, and
In any year that excess contributions are made to a Coverdell Education Savings Account, a 6% excise tax is imposed on the excess contribution.
We also found that certain employees of other agencies had also been affected, and that these excess contributions had occurred from September 1999 through September 2003.
Under current California law, the Roth and IRA contribution limit is $2,000 (the federal limit in 2001), and any contributions over that amount would be considered excess contributions.
In separate actions to be considered by the Ethics Commission next Tuesday, Councilman Nick Pacheco has agreed to a settlement of $7,300 for accepting excess contributions, improper receipt of matching funds and failing to disclose information about contributors during his 1999 campaign, the commission reported.
The key changes affect the following regulations: IRC sections 401(k)--the CODA regulations, 401(m)--matching contributions, 401(a)(30)--disqualification for exceeding limits, 402(g)--dollar limits on elective deferrals and 4979-excise taxes on excess contributions.
In a test case, excess contributions to life insurance plans formed under a VEBA plan were dividends to employer-participants and were deductible only to the extent the contributions funded term life insurance.
Karen Constine, an aide to the councilwoman, said any violations were unintentional and that the campaign already has returned the excess contributions and filed amended campaign disclosure statements to report the true source of the 46 contributions.
Any dollar amounts (such as excess contributions or excess allocations) are insubstantial in view of the entire case.
In addition, a Six-percent excise tax was imposed on excess contributions to an Education IRA, under Sec.
Note: With reference to the April 1991 "From The Tax Adviser": The five-year carryover deduction available for excess contributions for individuals also extends to contributions made to private nonoperating foundations.
1502-24(c) provides that, because deductible contributions include contributions made in the tax year and excess contribution carryovers from consolidated return years or SRLYs, excess contributions (including contributions made in a SRLY) may be applied against the consolidated taxable income, despite the fact that the contributing member had little or no taxable income in the tax year.