Most IRA funding errors are preventable with a little upfront awareness. This article covers the mistakes that happen most often — wrong tax-year designation, excess contributions, missed 60-day deadlines, one-rollover-per-year violations, and a few others — with what to watch for in each case.

Most account-holder funding errors fall into a handful of recurring patterns. The Internal Revenue Service (IRS) does not look at intent — it looks at what happened — so the cost of getting these wrong is real, even for honest mistakes. The good news is that each one has a clear "watch for" signal and a simple correction path if caught early.

This article walks through eight of the most common funding mistakes, organized by funding method. The full mechanics of each method are in the linked articles; this one focuses on what tends to go wrong.

What goes wrong. A contribution made between January 1 and April 15 can be applied either to the prior tax year or the current tax year. If you don't specify, Retired.com may default to the current year — which means a contribution you intended for the prior year doesn't count against that year's limit and may not be deductible (or eligible) the way you planned.

How to avoid it. When you initiate a contribution in the January–April window, explicitly tag the tax year it should apply to. Contact the Service Team if you're unsure how to do this in the platform, or to correct a misclassified contribution.

Correction window. If caught before Digital Trust, the custodian for your account, files Form 5498 for the relevant year, the designation can typically be corrected. After filing, correction is harder. See "Contributions — limits, deadlines, and how to make them."

What goes wrong. You contribute more than the IRS allows for the year — typically because (a) you contributed the full annual limit and later realized a Roth Modified Adjusted Gross Income (MAGI) phase-out reduced your eligibility, or (b) you contributed to multiple IRAs and exceeded the combined annual cap.

The cost. A 6% excise tax applies each year the excess remains in the account. Reported on IRS Form 5329.

How to avoid it. Confirm your eligibility — earned income and (for Roth) MAGI — before contributing the full limit. If your income picture is uncertain, contribute conservatively or wait until you have a clearer view late in the year.

Correction window. Withdraw the excess contribution (plus any earnings on it) before the federal tax-filing deadline for the year, and the 6% excise tax does not apply. Contact the Service Team if you think you may have an excess; a tax advisor can confirm the right amount to withdraw.

What goes wrong. In an indirect rollover, the sending plan distributes funds to you. You then have 60 calendar days to redeposit the full amount into a qualifying account. Miss the deadline, and the distribution becomes taxable in the year it was received — and if you are under age 59½, the 10% additional tax under Internal Revenue Code §72(t) also applies.

How to avoid it. Use a direct rollover instead. A direct rollover (funds move custodian-to-custodian without passing through your hands) has no 60-day clock and no withholding. The direct method is the default recommendation for almost every rollover scenario. See "Direct vs. indirect rollovers — what's the difference?"

Correction window. Limited. The IRS allows self-certification of certain hardship reasons for missing the deadline under Revenue Procedure 2020-46, but the qualifying reasons are narrow. We recommend consulting a tax advisor or attorney for guidance specific to your situation before assuming a missed deadline can be cured.

What goes wrong. When you take an indirect rollover from an employer-sponsored plan, the plan is required to withhold 20% for federal income tax. You receive 80% of the gross. To complete a full, tax-free rollover, you must redeposit not only the 80% you received but also an equivalent of the 20% that was withheld — paid out of your own pocket — and recover the withholding when you file your tax return.

What account holders often do. Redeposit only the 80% they received. The unredeposited 20% is then treated as a taxable distribution, with the 10% additional tax also applying if the account holder is under 59½.

How to avoid it. Use a direct rollover, which is not subject to the 20% withholding. If you must use an indirect rollover, plan for the cash flow: have funds available to cover the 20% during the 60-day window, then recover it on your tax return.

What goes wrong. The IRS allows only one indirect IRA-to-IRA rollover per 12-month period, counted across all of an individual's IRAs combined. A second indirect rollover within 12 months turns the second one into a taxable distribution — and, because the funds can no longer roll back in, an excess contribution if you try to redeposit them.

Important nuance. The one-per-year limit applies only to indirect IRA-to-IRA rollovers. It does not apply to:

How to avoid it. Use direct rollovers or trustee-to-trustee transfers. If you do need an indirect rollover, track your 12-month clock carefully. See "Transfers — moving funds from another IRA" for the simpler trustee-to-trustee path for IRA-to-IRA movement.

What goes wrong. Moving funds from a Traditional 401(k) or Traditional IRA into a Roth IRA is not a rollover in the tax sense — it is a Roth conversion, and the converted amount is taxable as ordinary income in the year of the conversion.

Account holders sometimes initiate what they think is a rollover, then discover at tax time that they owe income tax on the full converted amount.

How to avoid it. Before initiating any movement of pre-tax funds into a Roth account, confirm with a tax advisor whether the move is a rollover (same tax treatment) or a conversion (taxable in the year of conversion). See "Roth conversions — how they work" for the full conversion framework.

We recommend consulting a tax advisor or attorney for guidance specific to your situation, particularly for any conversion of meaningful size.

What goes wrong. Filing an extension on your personal tax return extends the time to file the return — it does not extend the IRA contribution deadline. The contribution deadline for a given tax year is generally April 15 of the following year, regardless of whether you've filed for an extension.

How to avoid it. If you plan to make a prior-year contribution, fund it before April 15 even if you are extending your return.

What goes wrong. Initiating a rollover or transfer into the wrong account type — for example, rolling pre-tax 401(k) funds into a Roth IRA without realizing that triggers a Roth conversion (Mistake 6), or transferring a Traditional IRA into a SEP IRA that has employer-contribution rules the funds don't satisfy.

How to avoid it. Confirm the destination account type before initiating. For a same-type transfer, the source and destination should match (Traditional to Traditional, Roth to Roth). For employer-plan rollovers, the destination IRA type drives the tax outcome. See "Transfers — moving funds from another IRA" and "Rollovers — moving funds from a 401(k) or employer plan."

The fastest path to a correction window is awareness. As soon as you suspect a mistake:

We recommend consulting a tax advisor or attorney for guidance specific to your situation. Retired.com can describe the mechanics and process corrections you direct; the tax-position decision belongs to you and your professional advisors.

If I make a mistake, will Retired.com flag it?
Sometimes — the Retired.com platform may flag certain patterns during routine review, particularly clear-cut cases like an excess contribution beyond the annual limit. But Digital Trust, the custodian for your account, processes the instructions you give and cannot catch every mistake in real time. The account holder is responsible for confirming that funding events are correctly designated and within the rules.

Are these mistakes more common with SDIRAs than with conventional IRAs?
The funding rules are identical. The mistakes themselves happen with any IRA. The reason they come up more in SDIRA contexts is that SDIRA holders are often moving larger, more complex balances — rollovers from former employer plans, transfers from other IRAs accumulated over years — which gives more surface area for an error.

What's the most common single mistake?
Across the funding categories, the missed 60-day deadline on indirect rollovers tends to be the costliest. Most of the others have correction windows or modest excise taxes. A missed 60-day rollover converts the entire amount into a taxable distribution — often a multi-six-figure or seven-figure event, sometimes paired with a 10% additional tax.

Can I undo a rollover or transfer if I realize the destination was wrong?
Sometimes, depending on timing and the specific paths. Some moves can be reversed within a short window; others (particularly conversions, which the Tax Cuts and Jobs Act of 2017 made permanent) cannot. Contact the Service Team immediately if you think a transaction landed in the wrong account.

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