Excess IRA contribution penalty
Confused. I’ve read that a person can contribute any amout to an IRA without being limited due to income restrictions. Depending on the person’s situation, he may be able to deduct the contribution up to IRS limits. Contrabutions over the IRS deductibility limit are allowed just non-deductible. Is this correct or does the amount over the IRS limit create a excess contribution penalty in an IRA? Can someone explain?
Permalink Submitted by Alan - IRA critic on Fri, 2016-04-08 22:39
Assuming the person has the earned income for a contribution, if they end up in the MAGI phaseout range and only a portion of that contribution can be deducted, the rest of the contribution is NOT excess, but it cannot be deducted and would be reported as a non deductible contribution on Form 8606. Or if the person does not want non deductible contributions in the IRA, they can have the non deductible portion of the contribution returned with any net income on that portion.