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Roth IRAs: The Complete Guide
Explore The Guide
• The Basics
• Know the Rules
• Opening an Account
• Withdrawing From Your Roth IRA
• Over the Income Limit
• Estate Planning
• Avoid Roth Mistakes
• Retirement

# How to Calculate (and Fix) Excess IRA Contributions

Individual retirement accounts (IRAs) are a great way to save for retirement, but what happens if you contribute to a Roth IRA and your income is too high? What if you contribute more than you're allowed to a Roth or traditional IRA?

Though it would be great if you could put all your money into a Roth (think: tax-free growth and withdrawals), the IRS limits how much you can contribute each year. You must be eligible to contribute based on your income. And if you are eligible, there are limits to the amount you can contribute. Likewise, there are contribution limits for traditional IRAs. But the income limits for these IRAs have to do with deducting contributions on your taxes.

If you violate one of the rules, you’ve made an ineligible (or excess) contribution. This means you’ll owe a 6% penalty on the amount each year until you fix the mistake. Additionally, you will not be allowed to deduct excess contributions from your income as you normally would with traditional IRA contributions.

### Key Takeaways

• There are contribution limits for both Roth and traditional IRAs.
• If you contribute more to an IRA than you're allowed, you've made an ineligible or excess contribution.
• Ineligible contributions trigger a 6% penalty each year until you remove the excess.
• You have several options for fixing the mistake, but it's best to act quickly.
• You’ll pay an additional 10% early withdrawal penalty on earnings if you can't take a qualified distribution from your IRA to fix the mistake.

## IRA Income and Contribution Limits

For 2021 and 2022, the most you can contribute to Roth and traditional IRAs is as follows:

• $6,000 if you're younger than 50 •$7,000 if you're age 50 and up

Roth IRAs have an extra restriction. Whether you can contribute up to the limit—or anything at all—depends on your modified adjusted gross income (MAGI). Here's a look at the Roth IRA income limits for 2021 and 2022:

## Excess IRA Contributions

If you contributed to a Roth when you made too much to qualify—or if you contributed more than you’re allowed to either IRA—you’ve made an excess contribution. That contribution is subject to a 6% tax penalty.

The $6,000 IRA contribution maximum ($7,000 for those 50 years old and older) is the combined total that you can contribute to all your IRAs. That means if you have a traditional IRA and a Roth IRA, your total contribution to those two accounts maxes out at $6,000 (or$7,000).

## How to Fix an Excess IRA Contribution

There are several ways to correct an excess contribution to an IRA:

• Withdraw the excess contribution and earnings: In general, you can avoid the 6% penalty if you withdraw the extra contribution and any earnings before your tax deadline. You must declare the earnings as income on your taxes. Also, you may owe a 10% tax for early withdrawal on the earnings if you're younger than 59½.
• File an amended tax return (if you’ve already filed): You can avoid the 6% penalty if you remove the excess contribution and earnings and file an amended return by the October extension deadline.
• Apply the excess to next year’s contribution: Doing this on a future tax return won’t get you off the hook for the 6% tax this year, but at least you’ll stop paying after you apply the excess.
• Withdraw the excess next year: If you don't choose one of the other options first, you can withdraw the excess funds by Dec. 31 of the following year in order to avoid the 6% penalty for the following year.

## Excess Contribution Considerations

In addition to the formula, there are some fine points to consider in correcting excess IRA contributions.

• You must correct the excess from the same IRA. You must remove the excess contribution from the same IRA that triggered the excess contribution. So if you have multiple IRAs, you can't cherry-pick the IRA you want to "fix."
• The last contribution is an excess contribution. If you made multiple contributions to an IRA, the last one is considered the excess contribution.
• You can distribute the entire balance to correct the excess. If the excess amount is the only contribution you made to the IRA—and no other contributions, distributions, transfers, or recharacterizations occurred in the IRA—you can correct the excess by simply distributing the entire IRA balance by the applicable deadline.

Most people who make ineligible contributions to an IRA do so accidentally. For example, you could contribute too much if you meet the following criteria:

• You make more money, and it pushes you beyond the income eligibility range.
• You forgot about a contribution you made earlier in the year.
• You contributed more than your earned income for the year.

In an honest attempt to fund your retirement accounts, you could make an excess contribution. The IRS anticipates that this will happen and provides guidelines to help you fix the mistake.

## What Is the Penalty for Excess Contributions?

If you contribute too much to an IRA, you will pay a 6% penalty on the amount over the allowable limit. You'll pay this penalty when you file your taxes for the year, so if you can fix the excess contribution before then, you should do so.

## What Is My MAGI?

Your modified adjusted gross income is the number that the IRS uses to determine your eligibility for annual contributions to a Roth IRA. The MAGI is determined by adding certain deductions back to your adjusted gross income. If you are uncertain about what your MAGI will be for the year, be conservative with your contributions until you do your taxes to avoid excess contributions.

## How Old Do I Need to Be to Make Catch-Up Contributions?

You must be 50 years old at the end of the calendar year that you'll pay taxes for to qualify for a catch-up contribution. For example, you must be 50 by the end of 2022 to contribute \$7,000 to your IRA or Roth IRA for the 2022 tax year.

## The Bottom Line

Of course, the easiest way to fix a mistake is to avoid it altogether. Pay attention to your earned income, modified adjusted gross income, and the annual contribution limits. Also, keep track of any contributions you’ve already made for the tax year—and be sure you allocate to the correct year any contributions you make between Jan. 1 and the tax filing deadline. Remember, if you do make a mistake, act quickly to fix it so you can limit the penalties you’ll owe.

### Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
1. Internal Revenue Service. "Roth Comparison Chart."

2. Internal Revenue Service. "2022 Limitations Adjusted as Provided in Section 415(d), etc.," Page 4.

3. Internal Revenue Service. "2022 Limitations Adjusted as Provided in Section 415(d), etc.," Page 3.

4. Internal Revenue Service. "Publication 590-A: Contributions to Individual Retirement Arrangements," Page 35.

5. Internal Revenue Service. "What If I Withdraw Money From My IRA?"

6. Internal Revenue Service. "Publication 590-A: Contributions to Individual Retirement Arrangements," Pages 31-32.

7. Internal Revenue Service. "Publication 590-A: Contributions to Individual Retirement Arrangements," Page 36.

8. Internal Revenue Service. "Publication 590-A: Contributions to Individual Retirement Arrangements," Page 32.

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