What to Do If You Over-Contribute to an HSA, IRA, or 401(k)
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What are the Contribution Limits for an IRA?
Just like an HSA, an IRA has contribution limits, too. During 2017, you can contribute up to $5,500 into a traditional IRA, a Roth IRA or a combination of the two. Even if you have two accounts the total contribution amount in both cannot exceed $5,500. Instead, you could pay $2,500 into one, and $3,000 into the other, for example.
If you’re aged 50 or older, you can pay an extra $1,000 per year as a catch-up contribution.
Don’t know the difference between a traditional IRA and a Roth IRA? Read our simple guide.
What to Do If You Contribute Too Much?
The first measure you can take is to try to prevent excess IRA contributions from happening. But, if some extra money slips into your account, get it corrected on time or it will be subject to a 6% tax penalty for every year that it stays in your IRA.
If you need to withdraw from your IRA, contact your IRA custodian to help you remove any excess and any income it has earned. However, if you’ve already filed your taxes, you can ask for an extra 6 months to rectify the situation. Follow the above option and file an amended tax return by October 15 using Form 1040X.
What are the Contribution Limits for a 401(k)?
The contribution limits for 401(k), 403(b), and a 475 are three times the amount you can put into an IRA, making it the best choice for a retirement account. As of 2017, you can contribute $18,000, or $24,000 if you are 50 or older. For 2018, the limits will rise to $18,500 and $24,500 for over 50s.
What to Do If You Contribute Too Much?
Unlike an HSA or IRA, there are procedures in place to stop you contributing too much money to a 401(k). If your 401(k) has company match, this doesn’t count towards the yearly limit, so in this instance, you can’t over-contribute. But there are a few situations that allow you to over-contribute – having two jobs with a retirement account, or switching jobs halfway through the year.
Again, if you do somehow over-contribute you’ll need to contact the plan custodian to avoid a 6% penalty. A good way to avoid the penalties is to review your HSA, IRA, and 401(k) at the beginning of December. Then, you’ll have enough time to make changes before you file your taxes.
