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RETIREMENT
SEPTEMBER 27, 2021

What happens if I go over my IRA contribution limit?

Answered by
Debra Greenberg
Director, Retirement & Personal Wealth Solutions, Bank of America
If you contribute more than the traditional IRA or Roth IRA contribution limit, the tax laws impose a 6% excise tax per year on the excess amount for each year it remains in the IRA. View the current 401(k) and IRA contribution limits. For Roth IRA contributions, your modified adjusted gross income (MAGI) may reduce or eliminate this limit.
The IRS imposes a 6% tax penalty on the excess amount for each year it remains in the IRA.
Going over the limit is definitely something to watch out for because it can happen easily enough; perhaps you simply miscalculate, or your contributions to a Roth IRA become ineligible because your MAGI for the year has exceeded the tax law limits. Your contributions to a Roth IRA will be phased out if your MAGI meets a certain level, which also depends on whether you file as a single or as a married couple filing jointly. After a certain MAGI, you are not eligible to contribute to a Roth IRA. You can learn more about these income ranges in our Annual Limits Guide (PDF).
It's especially easy for you to go over the limit if you are funding both a traditional and a Roth IRA.

What can I do if I've exceeded my IRA contribution limit?

There's no need to panic. Here's some tips if you've accidentally overfunded an IRA.
#1 You discover you've contributed too much before timely filing your tax return (including extensions).
  • Withdraw the excess contribution and any income it has earned to avoid the 6% excise tax. You won't owe additional federal income tax on the excess contribution you've taken out, but you may owe federal income tax on the earnings and an additional 10% federal tax on the earnings if you are under age 59½. State taxes may also apply. Note that if you're funding both a traditional and Roth IRA, the IRS requires that you remove excess contributions from the Roth IRA first.
#2 You discover you've contributed too much after timely filing your tax return, but within six months after your initial tax return filing deadline (without extensions).
  • Withdraw the excess contribution and earnings on that contribution and file an amended tax return by October 15 to avoid the 6% excise tax. The earnings portion of the distribution will be subject to taxes as described above.
#3 You discover you've contributed too much after the October 15 deadline.
  • Generally, you can carry the excess contributions forward as an IRA or Roth IRA contribution for that subsequent year. Just remember to reduce your contribution by the carry-forward amount that year, or you might end up exceeding the limit again. Note, however, that while the carry forward approach allows you to avoid the 6% excise tax on the excess amount in subsequent years — you still will incur the excise tax for the year of contribution.
Note that other correction methods also may be available depending on your specific facts and circumstances.
This can get complicated. In order to determine which approach suits your situation, consult with your tax advisor before making any moves as there may be forms you will have to file with the IRS when you are reconciling.
Ready to get started?
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
You have choices about what to do with your employer-sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over an employer-sponsored plan from your old job to your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment (particularly with reference to employer stock), and different types of protection from creditors and legal judgments. These are complex choices and should be considered with care. For more information visit our rollover page or call Merrill at 888.637.3343.
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