accidently overcontributed to an IRA

[chebden]

What is the name of your state? PA

It seems I made a mistake and contributed to a traditional IRA while also contributing to a company sponsored 401k. I only contributed $200 to the traditional IRA before I was told by a friend that you are not allowed to make contributions to both a 401k and a traditional IRA.

I would like to avoid any IRS penalties and am asking this question way in advance of the April deadline. Unfortunately, I was stupid enough to make the contributions to an existing traditional IRA (so it may be hard to tell which contribution is from this year) but I did not move the $200 into the same fund as the rest of the traditional IRA.

Now, while I would prefer to contribute this money pre-tax, I wouldn't mind contributing it post-tax -- or moving the fund to a RothIRA (I um under the salary cap.) I also wouldn't mind if I am forced to withdraw the money I contributed (it is within a year).

Can anyone point me to the laws regarding contributions to IRAs while contributing to 401ks?

Thank you,
Candice

 

[LdiJ]

What is the name of your state? PA

It seems I made a mistake and contributed to a traditional IRA while also contributing to a company sponsored 401k. I only contributed $200 to the traditional IRA before I was told by a friend that you are not allowed to make contributions to both a 401k and a traditional IRA.

I would like to avoid any IRS penalties and am asking this question way in advance of the April deadline. Unfortunately, I was stupid enough to make the contributions to an existing traditional IRA (so it may be hard to tell which contribution is from this year) but I did not move the $200 into the same fund as the rest of the traditional IRA.

Now, while I would prefer to contribute this money pre-tax, I wouldn't mind contributing it post-tax -- or moving the fund to a RothIRA (I um under the salary cap.) I also wouldn't mind if I am forced to withdraw the money I contributed (it is within a year).

Can anyone point me to the laws regarding contributions to IRAs while contributing to 401ks?

Thank you,
Candice

You could actually just leave the money in the IRA, but advise your tax preparer so that they can set up some "basis" for you in the IRA. Or, you can simply speak to the fund administrator and explain that you overcontributed and that you need to withdraw it.

In any case, since its only 200.00 its not a major problem. It would probably be better to withdraw it, but it has to be withdrawn as an excess contribution.

 

[chebden]

Thank you

Thank you for your help.

 

[efflandt]

See Publication 590 about IRA's in general and http://www.irs.gov/publications/p590/ch01.html#d0e4689 about IRA reclassification. If you are eligible for a employer sponsored retirement plan [your 401(k)] you might not be able to make tax deductable contributions to an IRA (depending upon income).

Keeping track of taxable contributions vs. tax deferred gains could be an accounting nightmare if you do not have complete tax records of your contributions when you take distributions in your old age (will you still have your current tax records 30, 40, or 50 years from now)?

I would suggest reclassifying the IRA as a Roth IRA, which is not deductable, but the gains are never taxed if qualified, and it offers distribution flexibility without any tax liability during retirement. I am working towards having 1/3rd of my retirement money in a Roth