IRAs are beneficial in multiple manners; they allow you to reap tax benefits and they help you to save and plan for your retirement. That sounds pretty win-win to me, right? It’s especially beneficial if you’re capable of maxing out the limits of your IRA each year since that means you’re in a place of exceptional financial means. But there is one thing that can derail your financial status and cause you a major headache; and that’s breaking the contribution limits of IRAs. By now you should know that the IRS does not give you anything free and clear, even tax benefits for retirement savings. Because they do offer tax benefits, they also cap the amount taxpayers are permitted to contribute to a given IRA in a year, and that limit is not meant to be broken. While tax limits change routinely, there is a 2015 limit of $5,500 (raised to $6,500 if you are age 50 or older) or your taxable compensation for the tax year, and exceeding these amounts can cause you some financial stress.
What happens if you choose to contribute more to your IRA than the government finds appropriate? You’ll be forced to pay a penalty of 6%, which does not sound like much. However, you’re going to pay that penalty every single year until you remove the excess funds from the account in an effort to compensate for the overage.
No one wants to pay a fee for anything in life, but it’s especially true when the fees you are paying are on your savings and retirement funds. To avoid paying additional money to the government as a penalty for saving for retirement, be careful to ensure that your IRA limits are not exceeded, particularly when you roll over existing accounts in the future; it can save you significantly.
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