04 Jun If you contribute too much to an IRA

Q. My parents started IRAs for me when I was a teenager. I’m now 45 and I they just told me about it. But there were years when I was in my 20s and 30s when they funded the IRA for me, but I also funded it for myself – so I contributed too much in certain years. How do I clean up this mess?
— Sensing trouble

A. You’re right that you’ve got a mess to deal with.

We highly recommend you hire a certified public accountant to help you resolve the issue.

Start by gathering some information, said Victor Cannillo, founder of Baron Financial Group in Fair Lawn.

Cannillo said you should see if your parents have records regarding the contributions that they made on your behalf.

If they used the same custodian, you might be able to get an accounting of the amounts that they contributed to your account, he said.

Cannillo said there are several points to consider.

First – and this seems to be what you were hinting at in your question – there are limitations on the total amount that may be contributed to an IRA each year.

“Currently, it’s the greater of either $5,500 – $6,500 if the person is 50 or older – or your taxable compensation for the year,” Cannillo said. “Note that the maximum allowable amount could change depending on the years when the excess contributions were made.”

Then, he said, the IRS considers each individual person to have a single IRA. The maximum contribution limits apply to all of your IRA accounts. If you have more than one IRA account open, as you are referencing, you can contribute to one account or all of your accounts as long as the total contributions meet the yearly limit, he said.

“If there are excess contributions to your IRAs, there is an annual additional 6 percent tax penalty – paid with the filing of Form 5329 – on those excess contributions until you withdraw them from your account,” he said.

Normally, if the excess contribution for the tax year is withdrawn with any related earnings before the tax return deadline, including extensions, you are not subject to the 6 percent additional tax, he said.

Also the earnings on the excess IRA contributions as determined by the custodian will be subject to tax for the year the excess contribution was made, he said.

“Those earnings are also subject to a 10 percent early withdrawal penalty if the person’s age is under 59 1/2,” he said. “This would apply if you had excess contributions for 2017 and haven’t filed your return.”

From your question, it sounds as if your parents may have done this for many years, some of which are years when you made your own contributions, too. As we said at the start, you should hire a CPA to work with you to figure out what you owe.

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