Roth IRA Excise Tax Penalties

by Jane Meggitt

Excise tax penalties on Roth individual retirement accounts (IRA) come into play if you contribute more to the account than the Internal Revenue Service permits in annual contributions. As of 2011, the excise tax on excess contributions to a Roth IRA is 6 percent on the amount beyond the limit. If you make an excess contribution, avoid the penalty by withdrawing the amount before the annual tax-filing deadline.

Roth IRA Contribution Limits

The annual contribution limits for both traditional and Roth IRAs are $5,000 for people under the age of 50 and $6,000 for those aged 50 and over. Unlike traditional IRAs, Roth IRA account owners may continue to make contributions past the age of 70 1/2, provided there is earned income. Contributions to Roth IRAs are made with post-tax dollars, so all withdrawals are tax-free once the account holder is at least 59 1/2 and the account has been open at minimum of five years. There are no minimum required distribution requirements for Roth IRAs.

Adjusted Gross Income Limits

Not everyone may contribute to a Roth IRA. Taxpayers must meet the annual adjusted gross income (AGI) limits. For 2011, single filers must have an AGI of less than $107,000 to make a full contribution to a Roth IRA, with partial contributions permitted for those with an AGI between $107,000 and under $122,000. For married couples filing jointly, the limit for full contributions is an AGI under $169,000, with partial contributions between an AGI of $169,000 and less than $179,000. Unlike traditional IRAs, contributions to Roth IRAs are not tax-deductible.

Excess Contributions

According to the IRS, contributions are considered excess if the amount is more than you are permitted to contribute for the current tax year. This does not include amounts correctly converted from a traditional IRA to a Roth IRA or rolled over from qualified retirement plans in a timely manner. If you are taking Roth IRA withdrawals and still contributing to the account, the excess contributions for a previous year may be reduced by the total amount of distributions taken out of the account for the current year, plus your limit for the year minus contributions to any type of IRA for the year.

Traditional and Roth IRAs

Traditional IRAs may be deductible for taxpayers meeting the annual AGI limits or for those who do not have an employer-sponsored retirement plan. Anyone may contribute to a traditional IRA, but deductibility is based on income. It is possible to contribute to both a traditional and Roth IRA in the same year, but the total contribution limit for all of an individual's IRA accounts is still $5,000 or $6,000, based on age. Contributions above those amounts are excess, even if split between types of IRAs and various accounts.

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