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What Bad Things happen if you accidentally contribute more than the yearly limit to a Roth IRA? Can you just change part of it to the current year?

My story:

I decided to be Foolish this year and open my first Roth IRA. I decided that I should also beat the rush and send in my application and $2000 check (for 2001) the first week in March.

Two weeks later, the company (a large mutual fund company) send me a letter about my account, pointing out I don't have any beneficiary listed. I didn't want to list one, but at least it shows they got my application. But I look at my checking account and the check hasn't come through.

I called and asked a CSR what was wrong and she said that the account was open but contained no money because I'd forgotten to sign my check. A real embarrassing Homer Simpson Moment "DOH!"

She said they'd be sending the check back with an appropriate letter so I could sign it and send it back. Fair enough.

But that was almost a week ago now, and 10 days since the date on their other letter. Maybe I'm getting too impatient, but I'm worrying that I may not get the check back in time to get it back to them before April 15th. And of course I'm sure this is a very busy time in the mutual fund business, with all the people trying to do things at the last minute like me. So even if the signed check gets there in time will it be processed in time?

I'm wondering if I should open a separate Roth IRA here at my credit union, just to be sure I get the money in for 2001. The upside is I can go into their office and do it face to face, and there is no delay waiting on checks to clear, so delays will be minimized.
The downside is that they don't offer index funds, just various flavors of CD and money funds.

(Yes, I have enough money to make both $2000 payments, although just barely.)

Of course, if I do this, I'd have to hold back the check for the mutual fund co. until
April 16. Or would I? If I really want to push things, I could send the check to the mutual fund co. and then check if they'd gotten it by April 12th, and then go fight crowds at the credit union if they haven't.

The motivation for wanting to go down to the wire this way is to avoid any hassles or penalties involved in moving the credit union Roth IRA into the mutual fund co. Roth IRA. Plus I'd feel like a jerk for putting the credit union to the trouble of setting up a Roth IRA account for only a month or so.

If things work out such that I have contributed $4000 to Roth IRAs for 2001, what bad things happen when? Can I just have one or the other relabeled as being contributions for 2002 and how difficult is that?

Trying to decide how much worrying to do and about what.

Comments or suggestions?
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Be careful here...

If things work out such that I have contributed $4000 to Roth IRAs for 2001, what bad things happen when? Can I just have one or the other relabeled as being contributions for 2002 and how difficult is that?

Your total IRA contributions for tax year 2001 cannot exceed $2000 (likewise the total limit for 2002 is $3000). That's not total per account, it's total for all accounts, both traditional and Roth IRAs. If you contribute more than $2000 for 2001, you will be subject to an overcontribution penalty of 6% per year. You don't want to overcontribute--I did it last year and it's a pain to right the wrong.

I'm wondering if I should open a separate Roth IRA here at my credit union, just to be sure I get the money in for 2001. The upside is I can go into their office and do it face to face, and there is no delay waiting on checks to clear, so delays will be minimized.
The downside is that they don't offer index funds, just various flavors of CD and money funds.


This really doesn't sound like a great place to put your money. Neither CD or money market funds yield high returns--their main use is a safe place to stash money. If you're investing for the long haul (and if you're opening an IRA you probably are), you want your money in stocks. This doesn't mean you need to invest in individual stocks, mutual funds, index funds, or exchange traded funds will do just fine. But if you're looking to invest in an index fund (certainly a good idea), you don't want your money in CDs.

Instead I'd look to see if you can't overnight the check back to your broker, or wire the money from a checking account. Wiring can sometimes cost around $20, but I think in your case it would be worth the hassle and guarantee the funds arriving in time. The other possibility is opening an account with an online broker (only takes about 10 minutes) and wiring the money in.

You've got two weeks--don't despair, but get cracking!
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Of course, if I do this, I'd have to hold back the check for the mutual fund co. until April 16. Or would I? If I really want to push things, I could send the check to the mutual fund co. and then check if they'd gotten it by April 12th, and then go fight crowds at the credit union if they haven't.

Have your credit union wire the money if you are worried. It will cost about $30.
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Thank you to those who replied.
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Latest news on this:

Well, I called the company again and they advised sending a new check with an appropriate cover letter including my account number.

I did so a week ago, but as of last night they haven't gotten it.

(Nor have I gotten my unsigned check back, that they said they'd send me.)

I was waffling on trying some other last minute trick or just giving up on contributions for 2001.

But according to Tom Jacobs, it doesn't matter as long as the letter and check do get there eventually.

http://www.fool.com/news/foth/2002/foth020411.htm?ref=foolwatch

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Another thing: Your contribution, like your tax return, need only be postmarked by April 15. So, if you're worried that your IRA contribution check has to clear by April 15 and that you are too late, no way. Just get it in the mail by Monday.
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So that is reassuring.
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