How much can I contribute per year?

[Guest hammr]

I have 2 IRAs, one traditional and one roth. I contribute $2000 a year to each, for a total of $4000 a year. My accountant now tells me this is bad and I could be penalized. He tells me a max of $2000/year can be contributed to IRA, that doesn't sound like much.

I contribute to both of them directly from my bank account so I have already paid tazes on what I am contributing.

I thought it was $2000/yr for each IRA.

Am I wrong?

What is the maximum number of IRA accounts one can have?

What is the TOTAL/maximum amount of money that can be contributed to one's retirement per year?

[John G]

Your accountant is correct. Your maximum contribution to all combinations of IRAs (Roth and regular) is currently $2,000 per year if your earned income is more than 2,000 and you satisfy all other qualifications.

The number of accounts is a totally separate issue. You can have as many IRA accounts as you wish. If you qualify, you can have a mix of Roth and regular, although Roth ussually is the better strategy. You can also have IRA accounts at multiple custodians. BUT, you can NOT contribut 2k to a Roth and 2k to a regular account. Yes, you will eventually be penalized. You should act now to correct the problem. Call your custodian ASAP.

Two additional notes: If you are married, your wife (even if she is not working) could qualify on your earnings and have her own IRAs. Congress has proposed to increase the IRA contribution ceilings, and this appears to be a popular measure that will eventually pass.

[Guest hammr]

How high of a penalization are we talking about here?

[John G]

Ask your accountant, the penalties are steep. I believe it is a 6% excise tax of the excess EACH YEAR until the excess is withdrawn. That is a $120 penalty for each extra 2k each tax year. For example, if you have put in 4k for three years, then you have a $720 excise tax. You should not try to "game" the IRS on this issue.

Start trusting your accountant to know IRS regulations. I don't understand how you could just assume the 2+2 contributions. You apparently have not read articles on IRAs or any of the IRS publications. You may want to read IRS publication 590 which covers "more than one IRA" on page 7 and has a specific caution on the combination of Roth+regular. Excess contributions are covered on page 33.

If you act to correct the problem before the IRS comes to you, then you may either eliminate or reduce the damage. For 2000, the damage can be undone if you withdraw the excess by the date your tax return is filed, including extensions. So, file an extension (form 4868) and fix the problem. Your accountant and custodian can help you.

If you persist in continuing your excess contributions, you will probably have to find a new accountant. Very few professionals are willing to risk their reputation on a deliberate violation by a client. If you use the same custodian, they should have caught the duplicate contributions and refused the deposits.

[Guest hammr]

Shoot!

Thanks man...