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Contributing to a Roth IRA can be a great way to secure your financial future with tax-free growth and withdrawals. However, Roth IRAs have income limits, and if your income unexpectedly exceeds these limits, you may find yourself with excess contributions that need to be corrected. Failing to address excess contributions can result in penalties and tax consequences. In this guide, we’ll walk you through how to correct excess Roth IRA contributions properly and avoid unnecessary penalties.

Understanding Roth IRA Contribution Limits

The IRS sets income limits for Roth IRA contributions based on your Modified Adjusted Gross Income (MAGI) and tax filing status. These limits determine whether you can make full, partial, or no contributions. If your income exceeds the upper threshold, you are not eligible to contribute to a Roth IRA for that year.

For example, in 2025, the contribution limits and phase-out ranges are as follows:

Single filers: Full contribution allowed if MAGI is below $150,000. Partial contributions allowed up to $165,000. No contributions allowed beyond $165,000.

Married filing jointly: Full contribution allowed if MAGI is below $236,000. Partial contributions allowed up to $246,000. No contributions allowed beyond $246,000.

If your income unexpectedly exceeds these limits after you’ve made contributions, you’ll need to correct them to avoid a penalty.

Consequences of Excess Roth IRA Contributions

If you contribute more to your Roth IRA than allowed, the IRS imposes a 6% excise tax on the excess amount for each year it remains uncorrected. The tax applies annually until the issue is resolved, making it essential to correct the contribution as soon as possible.

How to Fix Excess Roth IRA Contributions

If you realize that you’ve contributed too much to your Roth IRA due to a higher-than-expected income, you have several ways to correct the mistake:

1. Withdraw the Excess Contribution Before the Tax Filing Deadline

The easiest and most penalty-free way to correct an excess contribution is by withdrawing the excess amount, along with any earnings generated, before the tax filing deadline (typically April 15, or October 15 if you file for an extension).

Steps to take:

• Contact your IRA provider and request a withdrawal of the excess contribution plus any earnings.

• Report the withdrawal and any earnings on your tax return. The earnings have to be included on your tax return as ordinary income.

2. Recharacterize the Contribution to a Traditional IRA

If your income exceeds the Roth IRA limit but you still want to contribute to a retirement account, you can recharacterize the excess amount into a Traditional IRA instead.

Steps to take:

• Contact your financial institution and request a recharacterization.

• Transfer the excess contribution and to a Traditional IRA. The IRS requires an earnings calculation to account for any gains or losses on the amount you're recharacterizing. Your custodian should be able to do this calculation for you.

• The contribution is now treated as if it was originally made to the Traditional IRA.

3. Apply the Excess Contribution to the Next Year

If you expect to have room to contribute next year, you can carry forward the excess amount. This option avoids the need to withdraw funds but still requires you to pay the 6% excise tax for the current year.

Steps to take:

• Leave the excess amount in the Roth IRA.

• Reduce your contribution for the next year by the excess amount.

• Pay the 6% penalty when filing your tax return.

4. Remove the Excess After the Tax Deadline (If Necessary)

If you miss the tax filing deadline, you can still remove the excess contribution. However, at this point, you will owe the 6% penalty for each year the excess remains in the account.

Steps to take:

• Calculate the excess amount and remove it as soon as possible.

• Pay the 6% excise tax on the excess contribution when filing your tax return.

• If the excess contribution remains in the account for multiple years, continue to pay the excise tax until it is corrected.

• You will need to consult a tax advisor because this can get very complicated.

Preventing Excess Contributions in the Future

To avoid future excess contributions to your Roth IRA:

• Estimate your income more accurately before contributing.

• Use the Roth IRA phase-out rules to determine how much you can contribute.

• Make contributions later in the year when your income is more predictable.

• Consider using a Traditional IRA or a Backdoor Roth IRA strategy if your income is too high. Be aware of the Pro-Rata rules if you go this direction. It is highly encouraged to consult a tax advisor.

Final Thoughts

Making excess contributions to a Roth IRA can be an easy mistake, especially if your income fluctuates. However, by taking prompt action to remove, recharacterize, or carry forward the excess amount, you can avoid costly penalties. Be sure to monitor your contributions carefully and consult with a tax professional if needed to ensure compliance with IRS rules.

Excess contributions is something that we see frequently from prospective clients. If you need help evaluating your options and want guidance from a CERTIFIED FINANCIAL PLANNER™, schedule a free consultation with us. We are based in New Braunfels, TX but serve clients virtually, nationwide.

Important Disclosure: This article is for educational use only. It should not be considered tax advice. Please consult your tax professional about your specific situation.