Finn Torode
I inadvertently contributed more than I was allowed to my IRA last year. Can I use the extra amount contributed towards a different year?
Contributions made to your IRA that exceed your maximum limit for any given year is considered an excess contribution. Excess contributions cannot be used or applied towards your contribution for an earlier year. This is true even if you contributed less than the maximum amount allowable for you for that earlier year. For example, if you made an excess contribution for 2010 of $500, you cannot apply that excess amount to your 2009 contribution even if you did not contribute the maximum amount that your were allowed to contribute for 2009.
While you cannot apply an excess IRA contribution to a previous year, you may be able to apply it to a later year if you contribute less than your maximum allowable amount for that later year. Using the example mentioned above, your 2010 excess contribution of $500 can be applied towards your 2011 IRA contribution as long as you do not exceed your maximum allowable contribution amount for 2011.
Applying your excess contribution to a future year is helpful because it eliminates your need to withdraw the money from your IRA to correct the excess contribution. However, you will still need to pay the 6 percent excise tax on any excess contributions that remain in your IRA at the end of each tax year that are not applied to a later year.
The best way to completely avoid the 6 percent excise tax is to withdraw the excess amount and any earnings by the due date of your tax return including extensions.
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