Expert: Steve Hach - 1/20/2008

Question
I have a simple question. What happens if you contribute more than legally allowed to you IRA? Where does the money go? This could easily happen when you have IRAs in more than one place and you make random contributions. One fund would not know that you had maybe given to another thereby maxing out the amount. And if you contribute more than allowed in ONE IRA, does the fund let you know, and then what do they do about it? Thank you very much.

Answer
Mary,

This is outside my area of expertise but I can provide a little insight.

If you contribute to an IRA you will get a statement at the end of the year with balances, contributions, fees, etc.

This would let you know if you exceeded your limits.

The IRA will just take your additional money and invest it, there is no problem on that end.

However, the IRS will also be notified of your contributions and you will not receive the tax breaks provided for any monies that exceed the lawful contribution limits.

I would advise staying on top of your contributions and I would avoid "random contributions."

You should have a budget and be aware of your income, savings, and investments.  If you are able to just throw money around you are either very lucky and well off or you are acting a bit careless with your precious resources.

Again, your IRA will just take the money and invest it, however, you will NOT be eligible for the tax breaks provided by the IRA for any contributions in excess of the legal limits.

If you have more money to invest, then you should set up a more aggressive investment plan in addition to your IRA.

Best,

Steve