What to Do if You Contribute Too Much to Your Roth IRA

Here's how to fix the problem and avoid tax penalties

Contributing to a Roth IRA can be a great way to save for retirement, but putting too much money into your account in any given year can trigger tax penalties. Fortunately, there are several ways to fix the problem and possibly avoid the penalties. Here is what you need to know.

Key Takeaways

  • Contributing to a Roth IRA can help you save for retirement, but you need to be careful not to over-contribute.
  • You might contribute too much to your Roth IRA if your income takes an unexpected jump, making you ineligible for a full (or any) contribution.
  • You can withdraw the money, recharacterize the Roth IRA as a traditional IRA, or apply your excess contribution to next year's Roth.
  • You will face a 6% tax penalty every year until you remedy the situation.

Why Excess Roth IRA Contributions Happen

There are several reasons that you might contribute too much money to a Roth IRA. For example:

You earned too little. You could overfund your Roth IRA if you earn less for the year than you originally expected. Like traditional IRAs, Roth IRAs must be funded with taxable compensation, which is money you make from a job or self-employment; investment income doesn't count. So, for example, if you made a full Roth IRA contribution at the beginning of the year but didn't ultimately earn that much, at least part of your contribution might count as excessive.

The annual Roth IRA contribution limit for anyone under age 50 is $6,000 in 2022. Individuals who are 50 or older can contribute an additional $1,000 catch-up contribution, for a total of $7,000.

You earned too much. A more likely reason is that you earned more for the year than you expected and have already funded your Roth IRA to the max. The law sets income limits on your eligibility for contributing to a Roth IRA, as well as on how much you can contribute if you are eligible. (Traditional IRAs, on the other hand, have no income limits on who can contribute, although your income can affect the extent to which your contributions will be tax deductible.)

For example, if you file your income taxes as a single person, you can't contribute to a Roth IRA if your modified adjusted gross income (MAGI) in 2022 exceeds $144,000. If your MAGI is between $129,000 and $144,000, you're eligible for a partial contribution. Below, $129,000 you can contribute up to the limit.

In the case of married couples filing jointly, you're eligible for a full contribution if your income is under $204,000. Between $204,000 and $214,000, you can make a partial contribution. Above $214,000, you're out of luck. (Bear in mind that IRAs are individual accounts, and spouses can each have their own Roths if they qualify.)

If your income is normally well within the limits, you probably don't need to concern yourself with this. But if you're close to the income limits, keep in mind that a substantial pay raise or bonus might push you over them, resulting in an excess contribution.

Note that you can calculate your reduced Roth IRA contribution limit using Worksheet 2-2 in IRS Publication 590-A.

Three Ways to Handle Excess Roth IRA Contributions

If you find that you've contributed too much to your Roth IRA, there are several possible remedies. But you'll generally need to act before your tax-filing deadline for the year (including extensions) to avoid penalties. The penalty is currently a 6% tax on your excess contributions.

These are your basic choices:

1. Withdraw your excess contributions

You won't face any penalties if you simply withdraw your excess contribution—plus any income it has earned in the meantime—by the due date for your tax return, including extensions. You will, however, have to include the earnings portion in your taxable income for the year. The technical term for these earnings is net income attributable (NIA).

Note that—even if you have already filed your tax return for the year—you can still withdraw the contribution within six months of your tax return's due date (excluding extensions). What you will need to do, the IRS says, is "file an amended return with 'Filed pursuant to section 301.9100-2' written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return."

2. Recharacterize your excess contributions

Another option is to recharacterize your excess Roth contributions by moving them into a traditional IRA. You can do that by instructing the financial institution that holds your Roth IRA to transfer the excess amount, plus any income it has accumulated, into a traditional IRA either at that same financial institution (a same-trustee transfer) or another one (a trustee-to-trustee transfer). The IRS says, "If this is done by the due date for filing your tax return (including extensions), you can treat the contribution as made to the second IRA for that year (effectively ignoring the contribution to the first IRA)."

Note that although the Tax Cuts and Jobs Act (TCJA) banned recharacterizing Roth contributions from a traditional IRA or other tax-advantaged accounts, starting in 2018, that does not apply to recharacterizing excess contributions in this situation.

3. Apply your excess contributions to a future year

You can also apply the excess contribution and its earnings to a future year's Roth IRA as long as you stay within the limits for that year. In this case, you may still be subject to the 6% penalty for the year.

What Happens if You Don't Remove Excess Roth IRA Contributions?

If you don't remove any excess Roth IRA contributions from your account, you'll be subject to a 6% tax penalty year after year until you do.

What Are the Contribution Limits for Roth 401(k) Accounts?

The most you can contribute to a 401(k) for 2022 is $20,500 if you’re under age 50 or $27,000 if you are 50 or older. That amount is the total for designated Roth and traditional 401(k) accounts combined, in case you have both types.  

What Happens if You Contribute Too Much to a Roth 401(k)?

Though this is unlikely to happen, if you do contribute more than allowed to your Roth or traditional 401(k), your employer should return the money to you as a "corrective distribution." That distribution will include both your excess contributions and any income on them.

The Bottom Line

There are several reasons you might inadvertently contribute too much to a Roth IRA. Fortunately, there are also several ways that you can correct the problem and possibly avoid any tax penalties.

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. "Topic No. 451 Individual Retirement Arrangements (IRAs)."

  2. Internal Revenue Service. "Retirement Topics – IRA Contribution Limits."

  3. Internal Revenue Service. "IRA Deduction Limits."

  4. Internal Revenue Service. "Amount of Roth IRA Contributions That You Can Make for 2022."

  5. Internal Revenue Service. "Internal Revenue Service. Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs)," Page 42.

  6. Internal Revenue Service. "Internal Revenue Service. Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs)," Page 43.

  7. Internal Revenue Service. "IRA FAQs."

  8. Internal Revenue Service. "IRA FAQS – Recharacterization of IRA Contributions."

  9. Vanguard. "Excess Contribution: Did You Over-Contribute to Your IRA?"

  10. Internal Revenue Service "IRS Year-End Reminders."

  11. Internal Revenue Service. "Retirement Plans FAQs on Designated Roth Accounts."

  12. Internal Revenue Service. "Issue Snapshot – Consequences to a Participant Who Makes Excess Deferrals to a 401(k) Plan."

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description