An individual retirement account (IRA) is a strategic way to manage your money and prepare for the future. Traditional and Roth IRAs help you save up for retirement and grow a nice nest egg. However, contributing to retirement accounts can be tricky.

These tax-advantaged accounts have strict limitations and putting more money into the account than you are allowed to could lead to some penalties.

2022 Contribution Limits for Retirement Savings Account

Understanding contribution limits is paramount. Limits can change year after year, so you must stay on top of current allowances to avoid issues.

In 2022, the most you can contribute to a Roth and traditional IRA is $6,000. The only exception is if you're over 50 years old. In that case, you can contribute up to $7,000.

Those figures reflect the combined total you can put into these accounts. That means individuals with both Roth and traditional IRAs must split the difference between the accounts.

There are additional limitations to be wary of when planning contributions. For Roth IRA, you can only contribute if you make under an adjusted gross income threshold. Making contributions when you made more than that threshold is an excess contribution. For more information about 2022 contribution limits for retirement savings account, visit the website.

The Penalties for Excess Contributions

Anything more than the stated limits is an excess contribution. So, what happens when you go above the 2022 contribution limits for retirement savings account?

All ineligible contributions are subject to a six percent penalty. You'll have to pay six percent on anything above the annual limit. Typically, you pay the penalty when you file income taxes.

It's important to address the issue as quickly as possible. The penalty applies every year the extra contributions remain in your account.

There are a few ways to deal with the extra funds. You can withdraw it, apply it to next year, or file an amended tax return. Remember that an additional 10 percent penalty will apply if you can't remove the excess as a qualified distribution.

The penalties for not following contribution limits can be steep. If you notice issues, fix them as soon as possible to minimize unnecessary fees.

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