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Subject:  Re: Excessive Contribution Date:  5/28/2004  10:33 AM
Author:  Wradical Number:  72016 of 133000

In early April, I contributed $3000 to my Roth IRA account and marked the contribution for the year 2003. I didn't realize it at the time, but unfortunately, I had already contributed $3000 in April 2003 for year 2003. It was an honest mistake.

I received notice of my excess contribution from the IRA company and they asked me how do I want to do to resolve the problem. My initial reaction was lets make it a year 2004 contribution. However, they indicated that I would have to pay a tax of 6% ($180) to correct the mistake no matter what I did. Are they correct? Is there any IRS rules that allow time to correct such mistakes? It is still less that two months from when the mistake was made.
Yes, there is. You have up until the due date of your return, including extensions to make the correction. Unless you filed for an extension, your time has passed and your excess contribution is subject to the penalty.


I really question that. In this case you haven't made contributions of more than $3,000 in one year, which is what the penalty is all about. Ira is right in that you have until the due date to of the return to correct an excess contribution, which is what this would be if you had done it in say, December.

My guess is that you did something like check the wrong box on a transmittal slip with your payment, which could have been a 2003 or 2004 contribution, given the date. Certainly if THEY had made a data-entry error, instead of YOU, the penalty wouldn't apply, and you'd be in the same situation. And I have to think many such transactions and errors occur in early April as the deadline approaches.

And I would think that their computer system could flag something like that, since you were already at the limit for 2003. Every statement I get on my IRA tells me my year-to-date contributions, so they have that info in their database all the time. At that point, they should have bounced the transaction and called you on it. They shouldn't be accepting more than $3,000 in contributions for a single account for the same year. ($3,500 for catch-up contributions.)

I'd pursue this with them, maybe a little louder. They don't have to move any money, which they would have if you tried it in December. In that case, you would have to withdraw the money, plus earnings. Here, they just have to change the description on the transaction.


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