Contributing regularly to an individual retirement account helps your investments grow in a tax-advantaged way, but it’s possible to have too much of a good thing.

“It can be surprisingly easy to contribute too much money to a traditional or Roth IRA and find yourself with excess contributions,” says Martin Schamis, a certified financial planner and head of wealth planning at Janney Montgomery Scott in Philadelphia.

[See: 7 Reasons to Invest in an IRA.]

Making contributions overzealously to your IRA can trigger a costly tax penalty.

“The Internal Revenue Service levies a 6 percent penalty per year for excess contributions left in the plan,” Schamis says. “Fortunately, the IRS makes it easy to correct the mistake.”

While less common, it’s also possible to contribute too much to a qualified retirement plan through your employer. If, for example, you changed jobs mid-year, your total elective salary deferrals to your previous and current employers’ plans could exceed the annual contribution limit. Again, that can have significant tax consequences.

“Over-contributing to a qualified retirement plan, known as an excess deferral, can be pretty serious if not corrected,” says Edward Dressel, president of Trust Builders in Dallas, Oregon.

Ordinarily, an employee who made excess deferrals into a plan would have until April 15 of the following year to contact the plan administrator to remove those contributions, along with any associated earnings. According to Dressel, the withdrawal would be subject to income tax, but the 10 percent early withdrawal penalty the IRS assesses for distributions made before age 59.5 wouldn’t apply.

Failing to remove excess deferrals in a timely manner can be costly, Dressel says.

“If the employee does not withdraw the excess deferral by the April filing deadline, then it’s taxed as income for the year the contribution was made and the year it was withdrawn,” Dressel says. “Effectively, you’ll be taxed twice for the same income.”

If you filed your 2016 taxes and your return shows an excess contribution, you still can correct it even though this year’s tax filing deadline has passed. To do that, you would need to have the excess contributions removed and file an amended return by the tax extension deadline in October.

Doing so allows you to avoid the 6 percent excise tax on excess contributions but doesn’t eliminate your tax obligation completely.

“If you remove the excess contribution, plus any earnings, before the October deadline, the earnings are going to be taxed as ordinary income,” says Cameron McCarty, owner of Vivid Tax Advisory Services in Des Moines, Iowa.

McCarty says tax filers who go this route should find out whether the 10 percent early withdrawal penalty would apply.

If you contributed to both a traditional and a Roth IRA, resulting in an excess contribution for both accounts, the order in which you withdraw those contributions matters for tax purposes.

“If you contribute to a Roth and traditional IRA in the same tax year and your total exceeds the allowable IRA amount, the IRS regulations require that you withdraw the excess from the Roth IRA first,” says Jesse Little, senior director of wealth planning for Wells Fargo Private Bank in Boca Raton, Florida.

Removing excess contributions from a traditional IRA, or a SIMPLE or SEP IRA if you’re self-employed, may impact your tax liability if you were eligible to deduct those contributions. Filing an amended return could result in owing additional tax, beyond ordinary income tax, or an early withdrawal penalty on the excess contribution.

In that scenario, leaving the contribution where it is might make more sense.

“You can offset the excess contribution by reducing the following year’s contribution maximum, provided that you can qualify for that contribution,” says Joel Russo, owner of Premier Financial Group in Wall, New Jersey. “You won’t owe tax, but you’ll pay that excise penalty tax of 6 percent because a deadline correction wasn’t made.”

Russo says investors should be aware that the excise tax may be different for certain types of retirement accounts.

A special consideration to these qualified plans is that higher excise tax penalties apply to excess contributions made to qualified pensions, profit-sharing plans and simplified employee pension plans, Russo says. “The excise tax penalties on these accounts can be up to 10 percent.”

Running the numbers can help you decide which path to pursue if you’re unsure which option will inflict the least financial sting.

[See: 10 Long-Term Investing Strategies That Work.]

“The decision between carrying forward the excess contribution or withdrawing the contribution and paying income tax is fundamentally based on math,” Little says.

McCarty reminds investors that if you keep an excess contribution in place and pay the excise tax, you must reduce your contributions for subsequent years until the excess contribution is resolved. For example, if you contributed $6,500 to your IRA for 2016 and your annual contribution limit is $5,500, you could only contribute $4,500 this year.

If you choose to carry over excess contributions, it’s in your best interest to resolve them sooner rather than later.

“When you carry the excess to the next tax year, you will still be penalized by the 6 percent penalty until the excess is fixed or corrected,” McCarty says.

If you contributed too much to any retirement accounts last year, be extra vigilant about keeping this year’s contributions on the right track.

“Work with your tax advisor. Tax planning is the first step to make contributions to a traditional IRA or a Roth IRA. This will help avoid mistakes and help filers make tax-smart decisions for the future,” McCarty says.

Enlisting the help of an advisor to fine-tune your tax strategy could also yield new opportunities to realize tax savings on your investments in the future.

[See: 8 Things Not to Hide From Your Investment Professional.]

“You may also discover other potential tax strategies such as Roth conversions or taking advantage of qualified dividends,” McCarty says. “Bottom line is that you can’t make prudent financial decisions without understanding the impact of taxes.”

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What to Do If You Put Too Much in a 401(k) Last Year originally appeared on usnews.com