No matter how hard we try, things slip through the cracks occasionally. One of these situations can be excess contribution to Roth IRAs. It’s not really anyone’s fault except maybe the payroll software when it comes to allowing over the maximum amount of deductions from your paycheck to go into your retirement program. However, the IRS does not care who made the mistake as you will still be responsible for the fine which is 6% of the excess contribution amount. Meaning if it was one thousand dollars, your fine would be sixty dollars.
These situations arise occasionally from getting bonuses or overly large commission checks and the payroll department does not catch them in time. Or perhaps there is not a variable set up in the payroll software to flag potential problems such as these. Although your employer made this mistake, it is not likely that they will take responsibility for any penalties or fines concerning your retirement program package. Therefore, it is up to you to alert your payroll department when larger amounts are coming through via your paycheck, as their software will automatically take its regular percentage and deposit the irregular contribution amount to your IRA account.
This also applies to multiple IRA accounts. If the total amount of your regular contributions to one or more Roth IRAs and traditional IRAs for one year exceed the maximum amount allowed, it will alert the Internal Revenue Service concerning the amount exceeded. There is another scenario that can arise from time to time. Your conversion may fail because your adjusted gross income exceeded the one hundred thousand dollar mark. This can also happen if you filed a tax return under single or seperate when you are actually married.
As there are many rules governing how much money is to be applied to your IRA account, you may want to employ the services of a financial tax planner that can prevent pitfalls such as this from happening. As the returns on investments are almost negligible in today’s market, you may want to educate yourself, on all the rules and regulations concerning your Roth IRA account. You are the one that is ultimately responsible for your growth, stability, and staying within the guidelines that the government has set forth concerning this type of retirement package.
We do expect a certain level of service from our human resources and payroll departments at the companies we work for, and for the most part, they do a great job. However, with the detail that is required to maintain financial instruments such as these. It may be to your benefit to open up an IRA account on your own and not depend on your employer for your retirement program anymore.