The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Retirement Investing


Subject:  Re: Maximum IRA Contribution for 2? Date:  10/12/1999  3:46 PM
Author:  Abhyasi Number:  14461 of 103822

<<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!
Copyright 1996-2021 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us