Received Terrible Advice From Schwab

In short, I’m (26F) self-employed making $100k+ a year

I’ve maxed out my Roth IRA the last few years but wanted to do more

I bank through Schwab and asked an advisor what more I could invest in, so they helped me open a Contributory IRA which I put $10k in to start

Now I’m seeing on my account that I went over the annual limit, because they count towards the same IRA limit

I sold everything in the Contributory thinking I could move it, but I’d have to pay a 10% fine so I just re-invested $7k to meet my 2025 limit

Was selling everything extra I did in 2024 the best course of action, and then re-investing it for 2025’s limit? And will I still have to remove the extra $3k in cash that is in the contributory?

Would appreciate any advice, this is all so foreign to me and I’m trying my best :frowning:

Update: I met with a CPA who said I will likely have to pay taxes on the gains, but otherwise I will be okay because I caught it early enough. Thank you everyone for the help!

If you’re self-employed and making $100K in profit, you should employ a CPA with expert knowledge on SEP or 401K self, or a simple plan.
Ira max limits are for all of your combined IRA contributions.
I thought that if you removed the contributions that were over within so many days, you do not pay the penalty, but I need to read up on it.

@Harley
Fidelity explains over contributing

@Harley
Agreed, I just scheduled an appointment with a tax specialist for 1 PM because this is so stressful haha

Val said:
@Harley
Agreed, I just scheduled an appointment with a tax specialist for 1 PM because this is so stressful haha

You’re gonna be okay,
I think worst case you pay tax on the income you made while that extra $ was in the account.
But absolutely withdraw the overage ASAP.
We have clients do this occasionally and it always works out.

Whether your positions were sold or maintained won’t make a difference for the implications of exceeding a contribution limit.
For 2024 contributions, you still have until the tax filing deadline plus extensions to complete a return of excess without being penalized. That involves money leaving the actual account, not the security you’d purchased.
For 2025 contributions, you have plenty of time to correct it. Same guidelines as I said for 2024 but a year later.
One year’s contributions can also usually be recharacterized as applying to the next year as an alternative. Which it sounds like might be what you actually did and would work assuming the year you assign it to wasn’t already maxed out.
You should also be aware that if you happen to be participating in an employer-sponsored retirement plan as well, your Traditional IRA contributions may be non-deductible.

@Harley
Thank you for this, yeah I’m hoping what I did counts as recharacterizing but I just made an appointment with a CPA to be sure

I’ve been self-employed my whole life and used a SEP-IRA because the contribution limit is a function of your business income, not a flat, fixed amount.

Jay said:
I’ve been self-employed my whole life and used a SEP-IRA because the contribution limit is a function of your business income, not a flat, fixed amount.

If you’re maxing that every year then consider opening a solo 401k. Higher maximums.

@Jonas
Lol. Thanks, but I’m semi-retired now and never made so much that the max SEP contribution wasn’t adequate for what I could afford to squirrel away. Good advice for others, tho.

You have until you file taxes to undo the previous year over-contribution without penalty. May take the brokerage a while because they must also remove pro-rated earnings, if any. The earnings are taxable too.

If you are self-employed, with no employees, then SEP is almost always the way to go.

I think it depends on how you pull the excess out. If it is a recharacterization of the excess you contributed then you will not be taxed the penalty for early withdrawal. I think this has to happen in the same year it was deposited.

“Contributory IRA?” If they mean Traditional IRA, that’s odd.
Max would be $7k in 2024 even if you hadn’t contributed a dollar to Roth IRA.
Which YEAR did you make the $10K contributions for? Did you make a 2025 contribution, or was it still a 2024 contribution?
Even still, you’d still have a $3k excess contribution. Can work on that separately, but wanted to make sure of the facts and timing of the situation first.
OR, any chance they meant SEP-IRA?

@Payne
I made the $10k contribution in 2024. In 2025 I reinvested the $7k and have the $3k in cash sitting there.
They helped me open a contributory/traditional IRA, but from what I’m reading if it had been an SEP-IRA I would’ve been okay.

@Val
See the other posts on here for more detail, but in short, yeah, there’s definitely excess contribution involved here.
So just to be clear, you…

Made $7k Roth IRA contribution for 2024, THEN
Made $10k T-IRA contribution For 2024, THEN
Had $7k of T-IRA contribution reassigned to 2025…?