Over contributed to Traditional IRA
Client over contributed to Traditional IRA by $500. Already filed taxes. Under 50 years old.
We will back out the contribution and run the calculation on penalties. The client reported the correct amount (7,000) on their tax return. When in fact, they contributed $7,500 for 2024.
Will they need to amend their return?
Permalink Submitted by Alan - IRA critic on Mon, 2025-06-02 18:09
If the 2024 contribution was made in 2024 (but not if made in 2025), any earnings returned on the 500 excess contribution return will be taxable in 2024. But there also could be a loss.
If the 2024 return was filed by 4/15, there is an automatic extension to 10/15 to remove the excess adjusted for gain or loss. If a gain, technically the 1040X should be filed to report the gain income, but the 1040x should also include an explanatory statement regarding the excess contribution and removal thereof. Otherwise, the IRS will not know it was removed until Feb. 2026 and could possibly levy the 6% excise tax, although the IRS generally does not act before they get the 1099R to see if the excess was removed. If the gain is very small and the 1040X would cost more to file than the tax on the gain, they might choose to pass on the 1040X, then explain to the IRS when and if contacted.
Permalink Submitted by Michael S on Tue, 2025-06-03 13:57
7,000 contribution was made in 2025. At a prior custodian, a $500 contribution was made in 2024. 2024 return was filed by 4/15/2025.
Permalink Submitted by Alan - IRA critic on Tue, 2025-06-03 16:17
Then request the return of 500 from the current custodian. If there are gains on that excess amount, they will be taxable on the 2025 return and so coded on the 1099R issued next January. The 2024 return does not have to be amended.