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 ?
California, for example, contributed approximately $13 billion more in federal taxes than it received in appropriations; New York had excess contributions of approximately $48 billion, while New Jersey provided $51 billion in excess contributions.
The Tax Court held that the IRS properly imposed the 6% excise tax due to excess contributions made by family members to their respective Roth individual retirement accounts (IRAs).
4973 6% excise tax for excess contributions to HSAs.
There is nothing unusual with the declaration of President Duterte that he included in his Statement of Assets, Liabilities, and Net worth (SALN) the excess contributions he received during his 2016 presidential bid, according to the Commission on Elections (Comelec).
Mr Pitt said it was important to remember when considering the repatriation of a portion of the surplus funds that as the State Actuary and QSuper itself have previously pointed out, the surplus was not members funds but excess contributions by the government as employer.
However, this option also carries the imposition of the 6% penalty tax on excess contributions for each year that the funds remain in the account as an excess contribution.
Ted Cruz gets to keep $51,100 in excess contributions with one small accounting maneuver, Center for Responsive Politics
To correct this violation, the excess contributions must be distributed to the plan participant.
That same dollar amount must be contributed as a QNEC to the plan and allocated based on compensation to all eligible NHCEs; any matching contributions and earnings related to the excess contributions distributed to the HCEs are forfeited.
Excess benefit plans are a NQDC strategy designed to automatically roll over excess contributions from the qualified retirement plan into an excess benefit plan.
Excess contributions to an HSA or an Archer MSA are subject to a 6% tax.
Topics include: earned income, IRA deductions and distributions, self- directed and stretch IRAs, excess contributions, vesting rules for 401(k)s, transfers, health savings accounts, and unmarried and same- sex couples.