You’re right, since you don’t have enough earned income in 2023 to cover the full $7,500 contribution for each of your IRAs, there has been an excess contribution. Here’s what you can do to address it:
Solution: Make a Removal of Excess Contribution
The good news is that you can fix this by making a removal of excess contribution before the tax filing deadline for 2023 (typically April 15th, 2024). Here’s what you need to do:
-
Withdraw the Excess Amount: Before April 15th, 2024, withdraw $4,500 each from your respective IRAs. This represents the amount that exceeded your eligible contribution limit based on your 2023 income.
-
Report the Excess on Form 5930: You’ll need to file Form 5930 with the IRS to report the excess contribution and its removal. This form helps avoid any tax penalties or complications during tax filing.
-
Interest Earned on Excess: Any earnings generated on the excess amount you contributed between January 4th and the date of withdrawal must also be withdrawn. Include this amount along with the excess contribution when making the withdrawal. You’ll report the earnings on Form 5930 as well.
Charles Schwab Might Help:
- Contact Charles Schwab: Since you have your IRAs with Charles Schwab, it’s advisable to contact their customer service department. They might be able to guide you through the withdrawal process and provide instructions for reporting the excess contribution on Form 5930.
Here are some resources that you might find helpful:
- IRS Instructions for Form 5930: https://www.irs.gov/pub/irs-pdf/f15400.pdf This page provides instructions for completing Form 5930.
- Charles Schwab IRA Contribution Limits: https://www.schwab.com/ira/traditional-ira/contribution-limits This page provides an overview of IRA contribution limits on the Charles Schwab website.
Tax Professional Consultation:
While the steps above should resolve the issue, considering the potential tax implications, consulting with a tax professional might be a good idea. They can review your specific situation and ensure you’re following the best course of action to avoid any tax penalties.
I and my wife is 55+ years old, we have IRA(traditional) account, based on my 2023 income, we can contribute total $6000, but mistakenly, we contribute $7500 each in Jan 4th 2024, what should do? If we withdraw $4500 each before April 15, 2024, is that ok to avoid any tax penalty?