No. of Recommendations: 0
<<Another max contribution detail I've yet to discover is: what's the penalty for contributing over the max 2K per year? Will it simply be rejected by
your broker? Does it invalidate the entire IRA, or is the amount over 2K simply taxed differently?>>

The excess contribution is penalized at 6% per year in each and every year it remains in the account. Many brokers won't allow the excess contribution, but many
don't care. If you have one of the latter, it's conceivable you could leave the money in there at 10%, pay your 6%, and net 4% within the account. Remove it,
though, and the same money would net you even more after taxes earning the same 10%

Thanks for the reply. I must admit I'm missing something here. If the penalty is only 6% per year, how could the same money net me even more after taxes, when my capital gain tax (long-term, lets say) would be 10% or 20%, depending on my tax bracket?

Also, I assume that both the excess contribution itself and the return it generates are penalized (E.g., the returns of an excess 10K growing for 10 years would also get taxed 6% every single year)?

Thanks again!
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.