IRS Mishaps

I had an interesting tax question come up – one of my clients contributed to an IRA during a year he was not allowed to contribute to an IRA due to his income. Sometimes clients also over-contribute to an IRA or 401K. What do you do when you discover this? If it’s before April 15th, please withdraw the funds immediately. If you discover the mistake after April 15th, you need to amend the return, reverse the deduction and pay the difference in tax. The money can remain in the account but when you eventually withdraw it – it’s taxable again. So please check with your tax professional before you make the contribution.

There are also special rules for self-employer IRA plans (SEPs) and single-member 401(K) plans.