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What are Excess IRA Contributions?

You're doing everything right. Maxing out your retirement contributions, thinking ahead, and being responsible. Then you get a letter from the IRS saying you owe penalties. What happened? You accidentally over-contributed to your IRA, and now it's costing you 6% of that excess, every single year it sits there.

This isn't a mistake that only happens to careless savers. It can even happen to people who are actually too motivated to save. Maybe you contributed to both a Traditional and Roth IRA without realizing the limit applies to both combined, or your income jumped mid-year and pushed you over the Roth eligibility threshold.  

The good news is that if you catch it quickly, you can potentially fix it without penalties. Miss the deadline, and those 6% annual penalties can start stacking up. Here's exactly what counts as an excess contribution and how to fix it before it costs you.

What Counts as an Excess Contribution?

An excess contribution happens any time you put more into your IRA than the IRS allows for the year.

Here are the key rules:

  • The total amount you can contribute across all your IRAs (Traditional and Roth combined) depends on annual IRS limits. 
  • Generally, there’s one standard limit for adults under age 50, and a higher limit for those 50 or older thanks to an additional “catch-up” contribution.
  • Your IRA contribution can never exceed your taxable compensation for the year. If you earned less than the annual contribution limit, your personal limit is simply whatever you earned. So if you made $5,000 from part-time work, your limit is $5,000, even though the general cap is $7,000.

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The Roth IRA Income Limits

Roth IRAs come with income limits that determine whether you can contribute and how much. These limits are based on your Modified Adjusted Gross Income (MAGI) and adjust periodically. These numbers change from year to year so it’s always a good idea to check the latest IRS income thresholds to see where you fall and how much you can contribute.

In general:

  • If your income falls below the IRS’s annual threshold, you can typically contribute the full amount to a Roth IRA.‍
  • If your income lands within the IRS-defined phase-out range, you may still be able to make a partial contribution.‍
  • If your income exceeds the upper limit, you won’t be eligible to contribute directly to a Roth IRA.

‍

The ranges vary based on your filing status, such as:

  • Single
  • Married filing jointly
  • Married filing separately (with more restrictive limits if you lived with your spouse during the year)

‍

If you contribute to a Roth when your income is above the threshold, or if you put in more than the limits, the extra counts as an excess contribution.

Excess contributions can also happen with SEP IRAs if employer contributions overshoot the limits, though the scenarios are a little different for business owners.

Why Does it Matter?

The IRS charges a penalty when money ends up in your IRA that shouldn’t be there. It’s called an excise tax, and it’s 6% of the excess amount for each year it stays in the account.

Let’s say you accidentally over-contribute $1,000 to your IRA in 2025:

  • Fix it before the tax deadline (usually by April 15): No penalty.
  • Don’t fix it: You’ll owe 6% of the excess for the year, in this case $60.
  • Leave it in 2026: Another 6% penalty for 2026 ($60), and it keeps adding each year until the excess is removed.

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That might not sound like much at first, but if the excess sits untouched or if the mistake was larger than $1,000, the cost adds up. The good news is that if you catch the error early, it’s straightforward to fix.

How it Happens in Real Life

It’s easy to imagine this mistake happening only to people who don’t pay attention, but even the most careful savers can slip up. Here are some common real-life scenarios:

  • Multiple accounts: Maybe you put $7,000 into a Traditional IRA and then $7,000 into a Roth, forgetting the limit applies to both combined.
  • Income surprises: You started the year under the Roth income limit, then a raise or bonus pushed you over the threshold. Now, part or all of your Roth contribution is excess.
  • Early contributions + employer deposits: You maxed out early in the year, but then your employer added money to a SEP IRA later, which pushed you over.
  • Math mistakes: Sometimes, it’s simply rounding errors or forgetting how much you already contributed.

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The point is: over-contributing isn’t rare, and it doesn’t mean you’re careless. It just means that the rules around contributions take a little attention.

How to Fix an Excess Contribution

If you discover you’ve contributed too much to your IRA, don’t panic. The IRS provides a few ways to correct it, and the best approach depends on when you catch the mistake. 

1. Withdraw the Excess Before the Deadline

If you spot the mistake before your tax-filing deadline (usually April 15, or October if you file an extension), you can withdraw the extra money plus any earnings it generated. This removes the problem entirely, and you avoid the 6% penalty.

Example: You’re under 50 and put $8,000 into an IRA in 2025. If you withdraw $1,000 plus the small amount it earned before the deadline, you’re in the clear.

2. Apply it to the Next Year

If you miss the deadline, you can sometimes apply the excess to your contribution for the following year. This only works if you have room under the new year’s limit.

Example: You over-contributed by $1,000 in 2025. In 2026, instead of contributing the full $7,000, you contribute $6,000 and count the $1,000 from last year. You’ll still pay the 6% penalty for 2025, but you'll stop it from continuing.

3. Recharacterize Your Contribution

If the excess happened because of Roth income limits, you might be able to recharacterize the contribution. This means shifting the money from a Roth IRA to a Traditional IRA (or vice versa) and treating it as if it had been made that way from the beginning.

Example: You contributed to a Roth but later realized your income was too high. You can recharacterize that amount into a Traditional IRA before the deadline.

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Tips to Prevent Excess Contributions

The best solution is to avoid the problem altogether. Here are some practical ways to stay within the rules:

  • Track contributions across all accounts: Remember, the annual IRA contribution limit applies to the total amount you put into all your IRAs combined, both Traditional and Roth.
  • Wait until your income is clearer: If you’re close to the Roth limits, consider waiting until later in the year before making contributions, so you know where your income will land.
  • Double-check your earned income: If your income is low or unpredictable, make sure you don’t contribute more than you earned.
  • Confirm employer contributions: For SEP IRAs, keep an eye on what’s being added by your employer so you’re not caught off guard.

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Stay on Track and Avoid Penalties

Excess contributions can happen if you go over the annual limit, contribute too much to a Roth, or exceed what you earned. They can trigger a penalty each year they remain in your account. Acting quickly can help you avoid or reduce that cost. Making an excess contribution usually means you’re eager to save, which is a positive impulse. With a little awareness and a quick check of your totals each year, you can keep your retirement savings on track and penalty-free.

Keeping track of your accounts can be easier when everything is in one place. PensionBee helps make it simple to roll over your old 401(k)s and IRAs into one account, giving you a clear view of your savings. Many rollovers happen automatically, but if yours needs extra attention, our personal rollover managers (called BeeKeepers) are ready to guide you every step of the way. With expert management and diversified portfolios powered by ETFs like SPY and MDY from State Street Investment Management, one of the world’s largest asset managers.

Frequently Asked Questions (FAQs)

1. What is an excess contribution?

An excess contribution happens when you put more into your IRA than the IRS allows for the year. This can include exceeding the total dollar limit, contributing too much to a Roth based on your income, or putting in more than your taxable earnings.

2. What are the contribution limits for IRAs?

2025:

  • Standard Contribution (under 50): $7,000
  • Catch-Up Contribution (50 or older): $1,000
  • Total Contribution Limit (50 or older): $8,000

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2026:

  • Standard Contribution (under 50): $7,500
  • Catch-Up Contribution (50 or older): $1,100
  • Total Contribution Limit (50 or older): $8,600

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3. How do Roth IRA income limits affect contributions?

Single / Head of Household

2025:

  • Full contribution if MAGI under $150,000
  • Partial contribution if MAGI $150,000 – $165,000
  • No contribution if MAGI $165,000+

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2026:

  • Full contribution if MAGI under $150,000
  • Partial contribution if MAGI $153,000 – $168,000
  • No contribution if MAGI $168,000+

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Married Filing Jointly

2025:

  • Full contribution if MAGI under $236,000
  • Partial contribution if MAGI $236,000 – $246,000
  • No contribution if MAGI $246,000+

2026:

  • Full contribution if MAGI under $242,000
  • Partial contribution if MAGI $242,000 – $252,000
  • No contribution if MAGI $252,000+

Married Filing Separately

2025:

  • Full contribution: $0 (phase-in starts at $0)
  • Partial contribution if MAGI $0 – $10,000
  • No contribution if MAGI $10,000+

2026:

  • Full contribution: $0 (phase-in starts at $0)
  • Partial contribution if MAGI $0 – $10,000‍
  • No contribution if MAGI $10,000+

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4. Can excess contributions happen with SEP IRAs?

Yes. Excess contributions can occur if employer contributions exceed the limits. The rules are slightly different for business owners.

5. What penalties apply to excess contributions?

The IRS charges a 6% excise tax on the excess amount for each year it remains in the account. The penalty continues until the excess is removed or corrected.

6. How do I fix an excess contribution?

  • Withdraw the excess before the deadline: Remove the extra funds plus any earnings before your tax-filing deadline to avoid the 6% penalty.
  • Apply it to the next year: If you miss the deadline, you can sometimes apply the excess to the following year’s contribution limit.
  • Recharacterize your contribution: If income limits caused the excess, you may be able to move the contribution from a Roth IRA to a Traditional IRA (or vice versa) before the deadline.

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7. How can I prevent excess contributions?

  • Track contributions across all IRAs combined
  • Wait until your income is clearer before contributing to a Roth
  • Double-check your taxable income to avoid exceeding it
  • Monitor employer contributions for SEP IRAs

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8. Why is it important to fix excess contributions quickly?‍‍

Catching and correcting the excess early helps you avoid the 6% annual penalty and keeps your retirement savings on track.

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.

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