Time to Correct IRA Contribution Errors!
If you filed a timely federal tax return, you typically have until October 15th of the year following the year the excess contribution. This year however the 15th falls on a Saturday so the deadline for correcting 2015 contributions is October 17th.
Did you exceed the contribution limit for your traditional or Roth IRA? If you don’t correct the mistake in a timely manner, a 6% excise penalty will be imposed.
The 6% penalty will be applied each year the excess amount remains in the IRA, so you will want to correct this error as soon as possible. Not only must the excess contribution be withdrawn, but you must also withdraw any net income attributable.
What if you have an unwanted contribution? The October 17th deadline still applies and you can either withdraw the unwanted amount or you can recharacterize your contribution. For example, if you have a Roth and traditional IRA and contributed $5,000 to your Roth but changed your mind, you can recharacterize the contribution and the funds will be transferred to your traditional IRA.
- Unwanted contributions can’t be corrected after the October 17th deadline
- Only true excess contributions may still be corrected after the deadline, but penalties may apply.