Q: I accidentally contributed $2,000 more than the IRS allows to my traditional IRA for the 2017 tax year. What can I do?
Excess IRA contributions happen from time to time. This is actually quite common if you contribute to several different IRAs, or if you only qualify for a partial IRA contribution for a certain tax year.
If you contribute too much to an IRA, the best course of action is to take the excess back as soon as possible, as well as any earnings that could be attributed to the excess contributions. (Note: Generally, your brokerage will calculate the earnings you need to withdraw.)
In order to avoid penalties, you need to remove the excess by that year's tax deadline, including extensions. So, if you contributed too much for the 2017 tax year, you have until the Oct. 15, 2018, extended tax deadline to get your money out.
If you don't manage to remove the excess in time, you'll pay a 6% penalty for each tax year that it remains in the account. This includes the year you made the contribution.
It's also important to mention that you won't get hit with an early withdrawal penalty for removing an excess contribution. However, any earnings you need to remove will be considered taxable income for the year the contribution was made.
For your $2,000 in excessive contributions for 2017, you're looking at a $120 penalty per tax year it remains, and your first penalty will kick in on Oct. 15 of this year. In other words, you still have a short amount of time to correct the mistake, so contact your brokerage as soon as you can to get the process started.