What if You Contribute Too Much to a Roth IRA?

by Ryan Guina

Roth IRAs are a great investment tool for retirement planning. But there are certain rules regarding Roth IRA contribution limits that you need to be aware of. For example, contributing too much to a Roth IRA may subject you to additional fees (and unwanted attention from the IRS).

A common example is contributing too much to a Roth IRA based on your income level; the ability to contribute to a Roth IRA begins to phase out at higher income levels. Contribution limits decrease once your Modified Adjusted Gross Income (MAGI) rises above $105,000 for single filers and $167,000 for joint tax filers. You can no longer make Roth IRA contributions once your MAGI rises above $120,000 or $176,000 for joint filers.

What happens when you contribute too much to a Roth IRA

Did you contribute too much to a Roth IRA?

Many people can easily plan around these contribution limits because they have a good idea what their income will be from year to year. But sometimes situations arise that make planning Roth IRA contributions a little more difficult. A raise or bonus can easily change the income qualification for some people.

Planning is essential, however, because contributing too much to your Roth IRA may subject you to a 6% excise tax if you don’t take care of the situation in a timely manner. Let’s look at some situations that could cause excess Roth IRA contributions, how you can effectively plan Roth IRA contributions and what to do if you contribute too much to your Roth IRA.

Ways you can contribute too much to your Roth IRA

Earning too much money to be eligible for Roth IRA contributions isn’t the only way you can contribute too much to your Roth IRA. You might, for example, have less earned income than your Roth IRA contribution. Another example could be contributing too much money to your Roth IRA by miscalculating your contributions or contributing too much across more than one IRA account. The IRS treats all IRAs as one account, which means the IRA contribution limits apply to both Roth and Traditional IRAs. (More information about handling multiple retirement accounts).

Planning Roth IRA Contributions

Getting your money in the game early is usually a great idea when investing, and many people like to contribute to their Roth IRAs early in the year so they have a longer period for their money to work for them. Some people prefer to make Roth IRA contributions throughout the year via dollar cost averaging. Both are great ways to make sure you get your money working for you and max out your Roth IRA contributions, if you know you will qualify for a Roth IRA.

Unfortunately, it isn’t always possible to know how much you will make in the course of a year, and some people may find that their income level exceeds the limit which allows them to contribute to a Roth IRA – only they don’t find this out until after they have made their Roth IRA contributions for the year. It might not seem like a big deal, but contributing too much to a Roth IRA can subject you to a 6% excise tax each year the funds remain in your account. Ouch! But don’t pay that tax just yet. This is a relatively easy fix.

Correcting Excess Roth IRA Contributions

According to the IRS Form 590, the 6% excise tax that applies to excess Roth IRA contributions can be avoided by withdrawing excess contributions or recharacterizing them as Traditional IRA contributions. Either action must be completed before the tax deadline, including extensions. There is a third option for correcting excess contributions, assigning your contribution to a future tax year. However, you may have to pay the 6% tax for the tax year your excess contribution is in your Roth IRA. More information about each option is below:

  • Remove excess contributions. The 6% penalty tax can be avoided by withdrawing the excess contribution and any earnings or losses by the tax deadline, including tax filing extensions. Any earnings will be subjected to income taxes and a 10% early withdrawal penalty unless they are a qualified distribution (see Roth IRA withdrawal rules for more information).
  • Recharacterize excess contributions as Traditional IRA contributions. Recharacterize is a nice word for “reclassify.” Basically, you can tell the IRS you wish to change the excess Roth IRA contributions to Traditional IRA contributions, assuming you qualify for a Traditional IRA.
  • Apply excess contributions to a future tax year. You can apply excess Roth IRA contributions to a future tax year, provided the amount you apply to the future year is less than the maximum allowed for that year. The downside to this option is that you may have to pay the 6% tax for the current year.

Which option is best?

This is one situation where I recommend visiting a tax professional and working closely with your IRA custodian. Each individual will have a unique situation, so it is best to contact a tax professional who can offer you specific corrective actions based on your needs. In all cases you will want to resolve this problem before the tax filing deadline so you can hopefully avoid paying any fees or penalties.

Published or updated August 26, 2016.
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{ 103 comments… read them below or add one }

1 RJ Weiss

This situation actually happened to me when I was first started a Roth IRA. Turned out that my grandparents were starting IRA’s for all the grandchildren and giving it to them as a Christmas present.

However, they didn’t consider the fact that I already maxed out a Roth IRA for the year with another mutual fund family. Unfortunately, I had to pay a tax on the excess contribution.


2 Jousaika Wap

Oh wow bless your heart, that is so terrible. Pesky grandparents giving you money without telling you and now you have to pay a small fee for the inconvenience. What a horrible life we live in huh?


3 craig

I have a Roth set up with Vanguard and once its maxed you don’t have the option to put more in just in case. Or at least I think that is in place. Since you can take out initial contributions, makes sense just to take it out so not to be taxed.


4 Ryan

That’s a nice feature. Some people open Roth IRAs at different brokerages or banks, so they may not have that automatic option in place. But it’s a good feature to look for in a broker. 🙂


5 Britt (Your Roth IRA)

I made an excess Roth IRA contribution in 2008 by accident. I had set up automatic monthly withdrawals from my checking account to my Roth IRA. But when the market headed down, I maxed out my annual contribution in mid-October. When November rolled around, the monthly contribution went in and triggered an excess contribution. Luckily, even if I had missed this myself, the discount broker I used, notified me of the excess contribution and forwarded the necessary paperwork for removing the contribution.


6 Ryan

Good to see your broker was on top of things. Hopefully it was caught and taken care of quickly enough that there were penalties or fees involved. 🙂


7 Art

I completed my taxes for 2009, and our AGI (164K) was just under the limt to contribute to 2009 Roth. I opened a Roth account with my MF company on-line for the max 5,000, but they pulled 10,000 from my account and applied it all in 2009. They would not reverse the transaction for me, so I had to withdraw excess contributions, and there was gain.
1) does this apply to my 2009 taxes, i.e. do I need to ammend my 2009 return?
2) shouldn’t a broker’s system have something in place to prevent an error of that kind, contribution in excess of the current limit?


8 Ryan

Art, Sorry to hear about that. I’m not sure why the mutual fund company would not reverse the transaction, especially if you caught it right away. I’m not sure how this will affect your 2009 taxes because it will depend on when he contributions were made, when the excess contribution was corrected, and possibly other factors.

Regarding the broker’s system having limits in place, I’m not sure how easy that would be to implement. They could easily put a notification in there if someone were to contribute more than $5,000 to a single IRA for a tax year, but it wouldn’t be easy to monitor all IRA contributions because people can easily contribute to IRAs with different companies, or in a Traditional IRA and Roth IRA in the same tax year. Most mutual fund and investment companies probably take the approach that it is up to the individual investor to monitor and keep track of their investment contributions. That said, there should be measures in place to prevent a double entry from occurring. If that is what happened in your case then I would run it up the chain to make sure the error didn’t happen again, or I would consider moving my money to a new investment house.

9 Annie

Can my husband and I both open and contribute to Roth IRA? our MAGI in 2009 is 165k? And both of us have 401k from our employers.

Another question is that I contribute $1000 into my traditional IRA, then now I noticed that my MAGI is too high for traditional IRA. Do I need to take the $1000 out?

THX! Annie


10 Ryan

Annie, the phaseout for Roth IRAs begins at $166,000 for 2009, so you just made it under the limit to maximize your Roth IRA contributions. You and your husband should each be able to open a Roth IRA and contribute the max amount, which is $5,000 each if under age 50, and $6,000 each if 50 or older.

Regarding your Traditional IRA, don’t withdraw the money. Instead, contact your IRA custodian and request to recharacterize it as a Roth IRA, that way you get the benefits of a Roth IRA. Your IRA custodian should be able to help you with the paperwork.


11 Julie

My husband and I each contributed the maximum of $5,000 into our Roth IRAs for tax year 2009, however, our MAGI is going to be around $176,000 for 2009. This means we can’t contribute to our Roths in 2009. I also expect we’ll be above the income limit in 2010 as well. Can we take advantage of the 2010 Roth IRA conversion loophole (no income limits on conversions in 2010 only) by converting our excess 2009 contributions to an after-tax Tradition IRA, then continue to contribute the maximum for 2010 as after-tax Tradition IRA contributions, and finally reconverting back to the Roth IRA before the end of tax year 2010?


12 Ryan

Julie, You should be able to do that, but keep in mind that there will likely be taxes due when you make the conversion from the Traditional IRA to Roth IRA. You will also need to consider other factors as well, including any other Traditional IRAs you may currently have in your investment portfolio (the IRS is going to basically treat them all as one IRA). For example, if you rolled over an old 401k into a Traditional Rollover IRA, then that amount will be considered part of your Traditional IRA and will factor into the tax consequences.

I would break this into two steps:

      1. Complete your 2009 taxes and determine your MAGI and how much you can contribute to a Roth IRA this year, and recharacterize anything over that limit to a Traditional IRA by April 15th to avoid any taxes or penalties.
      2. Look at the Roth conversion as a separate financial transaction, which it is. Because of the many tax considerations and long term implications, I would consider working with a tax professional and/or financial planner.

The good news is that you aren’t up against the tax deadline for the conversion, you have until the end of the year. It may also be a good idea to make 2010 contributions into a non-deductible Traditional IRA as well, just in case you aren’t eligible for the Roth again in 2010.


13 David

I contributed to a Roth IRA in February 2010. $5,000 for 2009 and $5,000 for 2010. In March 2010, I realized that I made too much money in 2009 to have a Roth and that I will make too much money this year in 2010 for a Roth. I quickly removed the money and put it back in my savings with a little over $12 of interest paid for the month it was there. I have not finished my taxes yet for 2009. Will I only need to pay tax on the interest earned or will I be penalized in some other way. Thank you for any help or insight in this matter.


14 Ryan

David, I think this is a situation where you will want to talk to a tax professional or investment advisor. It may be better to recharacterize the Roth IRA contributions as a non-deductible IRA, that way you keep the money in a retirement account and keep the long term tax benefits. They can also help walk you through your options regarding future investments, and possible penalties.


15 Scott

For 2009 I contributed 3000.00 to my Roth. However, at the end of the year I realized I made to much money (good thing to have happen). Since I had not contributed to a regular IRA I moved the money, along with the 800.00 profit I had made, to the regular IRA. On my taxes I have claimed the 3800.00 put into the IRA but don’t I have to pay taxes on the 800 profit I made?


16 Ryan

Scott, yes, you will have to pay taxes on the $800 income you made on your Roth IRA. I recommend contacting your accountant for more information regarding how to do this, or see if your tax software program covers IRA recharacterizations (many will cover this topic, but not all).


17 Jim

Hi Ryan,
Thanks for the helpful post. I’m leaning toward taking the 6% penalty because the formula for computing earnings on my excess contributions works against me, but I’d appreciate if it you could confirm that I’m think about this the right way.

I’m a married grad student with a nice fellowship but little earned income; I learned that the fellowship didn’t count toward earned income and that you can’t contribute more than your earned income when I started doing my taxes this week. So, in May 09 I exceeded my contribution limit by $185 and then, not realizing the mistake, topped up my contributions to $5000 by adding another $3500 in Dec 09. We’re over by $3685. I would take the excess money out and pay the 10% early withdrawal penalty plus additional income tax, but the earnings formula doesn’t take into account when the contributions were made, and so it looks like the 6% penalty will cost me less. As I understand it, the formula will use the account balance from May as a starting point to figure earnings and will treat the excess contribution as a whole, but this ignores the fact that the account’s appreciation during 2009 was not due to an extra $3685, but to all the money that was in the account before, plus the $185, at least up until December. Of course there have been earnings on the $3500 that I invested in Dec, but that money has been in the account for much less time, and it wouldn’t be fair to attribute 2009 earnings to it: using the balance from December to figure the earnings suggests a 7% return on the $3500, whereas doing it the IRS way ($3685 in the account since May) suggests a 33% return. I’ve spoken to Vanguard about this and they say they have to use the IRS formula, so when I do the math it looks like paying the 6% penalty will be cheaper.

I know you don’t have all the data in front of you and this is something to consult a tax professional about, but does my description of how the formula penalizes me at least make sense? I guess it might be the fairest solution the IRS could come up with, and I’ve read that it was worse before, but in this case I think I’m getting the short end of the stick.


18 Ryan

Jim, this is a situation where I would leave it to the pros. If you have double checked your numbers and Vanguard verified the calculations, then go with the option that costs you the least amount of money. Sorry to hear it happened, but the goon news is that you caught it fairly early and this didn’t drag on for a couple years!


19 Jim

Thanks for reminding me of the bright side, Ryan. And sorry for throwing all those details at you! 🙂


20 Bob


In order to lower our tax due, I had my wife open a Traditional IRA and contribute $5000 for 2009 allowed based on our AGI and that she works for someone that does not offer a retirement plan. What I neglected to consider, was she had already contributed $2600 throughout 2009 to a Roth IRA through a different custodian.

Based on the options you present in your article, I’m thinking I should apply these $2600 contributions towards 2010? Do you think this is the best option? How do I go about doing that? Can I do that even though I made these contributions as long ago as Jan 2009?



21 Ryan

Bob, I think you would be able to do that, but I am not 100% certain. Also keep in mind that if you do convert it to a Roth IRA for 2010, you may still owe taxes or penalties based on any earnings you may have had since your wife made the contribution. It may be easier or even cheaper to leave the Roth IRA as it is and see about changing part of the $5,000 Traditional IRA contribution to a 2010 contribution if possible. You would need to research the feasibility and tax ramifications of both scenarios. I recommend contacting an accountant or your IRA custodian. They will be able to give you the full range of pros and cons.


22 Eric

If I am converting my traditional IRA to a Roth, am I able to make the standard $5000 contribution to the IRA for 2010 AND convert it to the Roth this year as I would do for all contributions and earnings made prior to 2010? I would make it directly, but am above the earning threshold for direct Roth contributions.


23 Ryan

Eric, yes, you can make a $5,000 non-deductible IRA contribution and roll it over in the same year.


24 Bob

My wife and I are both 60 years of age and each hve a Roth IRA. My wife stopped working but I still work and we will file jointly for our Income tax. And, our AGI will be under $96000 for 2010. Can we still make a $6000 contribution to each of our Roth IRAs for 2010 or is my wife excluded and only I can contribute.


25 Ryan

Bob, as long as you file jointly and otherwise meet income requirements you can have a spousal IRA in your wife’s name. It’s a great way to continue saving additional income for retirement!


26 Paul


Quick thanks for helping all of us out!

I will try to be brief but include all relevant information. I am 25 and recently switched jobs and went to a new company. I moved my old employer sponsored plan (401k) to a traditional IRA. The amount was ~ $5,800. I then turned around and converted the traditional IRA to a Roth and am now concerned I have exceeded my annual contributions? I am planning on paying tax on the amount I converted, but am I in excess of ~800 over the limit?



27 Ryan

Paul, what you did was create what is called a Rollover IRA. A rollover IRA is funds that were previously in another IRA or another qualified retirement account, so they will not count against your annual IRA contribution limits (because they already counted against contribution limits for a different retirement plan). So you are still eligible to contribute to your Roth IRA this year if you still wish to do so. The biggest factor you need to be aware of in this situation is making sure you pay any applicable taxes on the Roth IRA conversion. Best of luck!


28 Paul

Just as I thought- I did do my research! 🙂

Thanks for the timely reply!


29 Jacob


I am a student, and didn’t work in 2010, but I contributed $5000 to my Roth IRA, I may have made this much money in capital gains (I haven’t done the math on all my transactions for 2010 yet). But I wanted to know, if I did make this much in capital gains will it be considered going over the limit? Also if I did not make this much in capital gains, should I take out the difference to correct this? Also what becomes of the $300 earnings that I have made so far on this $5000 contribution?



30 Ryan

Jacob, you need to have earned income to be eligible to contribute to a Roth IRA. For example, earned income must be taxable income and can include income such as wages and salaries, tips, bonuses, and other compensation directly related to a service you provided. Income from interest, dividends, or other investments does not qualify as earned income for Roth IRA purposes. Here are more Roth IRA Rules.

In this case, you may not actually be eligible to contribute to a Roth IRA if you don’t have any earned income for the year. I recommend speaking with a tax professional before the end of the year to be sure you don’t face any penalties or other issues. Best of luck!


31 Hilary

Our combined AGI is about 110,000. My husband has 401k with his employer, and I don’t. In early this year, I contributed $5000 to my IRA, and my husband contributed $5000 to his Roth IRA for the year 2010.
Is my husband eligible for a tax deductible IRA in 2010? If yes, can he withdraws or reverts back his Roth contribution to a new IRA? We are trying to reduce tax.


32 Ryan

Hilary, the max one can contribute to an IRA is $5k (if under age 50). This limit is across all IRAs – so someone could contribute $5,000 to a Roth IRA, or $5,000 to a Traditional IRA, or a combined $5,000 between both IRAs.

Next is the Traditional IRA contribution limits – for 2010, the phase out range for married filing jointly is between $89,000 and $109,000. This means the tax deductible contribution limits start decreasing at an AGI of $89k and are eliminated at $109,000. So it doesn’t appear as though your husband would be able to recharacterize (or reclassify) his Roth IRA as a deductible IRA. That said, I recommend visiting with a tax professional or investment professional to double check your numbers and further assess your options. Best of luck.


33 Michael

I made a $6000 contribution for 2010 earlier this year to my Roth IRA (I am over 50). I have had a better than expected year and for the first time in my life I am probably going to make too much money to contribute to a ROTH IRA.

What should my next step be? My ROTH IRA has other money that I contributed in past years in it, so figuring out how much I earned from the $6000 2010 contribution will be messy.


34 James

Hi Ryan,

Great article.

I wanted to make sure I understand something, regarding my situation.
On my 2009 taxes, I indicated the correct ROTH IRA contribution of $4360.
However, recently, I realized that my brokerage had been set to take $5000 out of my account.
So, actually I was over by $640.
Unfortunately, I already contributed my $5000 for 2010. And it’s December.

What’s the most painless way to fix this?

— I like the idea of re-characterizing the $640 excess to a 2009 TRADITIONAL IRA contribution with my brokerage. I can legally do that? Go back in time?

If so, what if any penalty do I have to pay? Do I still have to pay the 6% penalty?

In terms of what I earned on the $640, I *usually* had that amount in cash. And the money market rate was .02%. So I figure over two years it earned $25.85. Does that factor into the penalty? Hopefully my math is correct.



35 James

Follow-up to my question: if I go back in time, and put the excess towards a 2009 traditional ira, do I have to refile my 2009 taxes?

If I wanted to avoid that pain, you also mentioned applying an excess contribution to a future tax year. Could I apply this $640 2009 excess to my 2011 ROTH IRA contribution instead?
I’d probably still have to pay a 6% penalty, right? But at least I wouldn’t have to refile…


36 Ryan

James, unfortunately, I’m not sure how to handle your situation. I recommend contacting a tax professional for assistance on this one. Best of luck!


37 CD

Hi Ryan, excellent and very helpful website. I have a question for you if you don’t mind. I just opened a Roth IRA this year and fully funded it. As the year went on my income exceeded the contribution limits. I now am reading about the traditional to Roth backdoor for 2010. As such can I keep the Roth? Do I need to recharacterize it? Then convert it back?

I am confused can you help?
Many thanks.


38 Ryan

CD, You will most likely need to recharacterize the contributions as a Traditional (non-deductible IRA). After that point, you can then convert it to a Roth IRA. You may wish to speak with a tax or investment professional to help you with the required paperwork to ensure you file it correctly – otherwise you may find yourself unexpectedly owing taxes. Best of luck!


39 Rahul

Thanks for helping us all.
Because of an unexpected good year, my income has risen to a level that my Roth IRA contribution of 5000 in 2010 is now excess contribution and needs to be corrected. Normally I can contribute 5000 into a Roth IRA each year. I also have substantial gain on the 2010 IRA contribution.
I initially thought to recharacterize the excess contribution and earnings as traditional IRA contribution but I do not want to lose the advantage of the Roth IRA so I am thinking of leaving the excess contribution in the Roth account and taking the 6% hit.
If I leave the excess contribution in the Roth account, will I have to pay 6% penalty on the 2010 contribution of 5000 only or do I have to pay the 6% penalty on the earnings of 2010 contribution also?
Next year I anticipate being able to contribute 5000 into my Roth IRA and if I leave my contribution from 2010 in the account, I will not contribute for 2011.
Will I be then be free of the requirement to pay the 6% penalty next year?


40 Ryan

Rahul, I recommend speaking with a tax or investment professional for your specific situation.


41 Steve

Really great article. I have both a traditional and Roth IRA. I’ve only been contributing to my Roth, and met all the eligibility requirements. When I got married in 2009, my income went above the $167,000 limit for joint filing. Of course, my investment “advisor” was either ignorant or stupid and did not tell me this, and I continued having my monthly deductions taken out for all of 2010 to a total of almost $5,000. So can I got an accountant to recharacterize those contributions into the traditional or can only my advisor do it?


42 Steve

I also need to add one thing. My account is no longer with the firm that I made these contributions to. I can access my old statements but am no longer their customer. Will this be an issue? Can I just recharacterize my contributions for the whole year, or do I need to do each month?


43 Ryan

Steve, I believe you need to recharacterize the account with the current plan administrator. I recommend contacting them or your accountant for more specific information.


44 Jamie


My wife and I each started a Roth IRA early in 2008 and we filed a joint federal return that year. We contributed $1,200 each to our IRAs during 2009. In 2009 we filed seperately (for the first time ever) to minimize our taxes. In 2010 we continued to contribute to the IRAs, again for $1,200 each. I do not yet know what our filing status for 2010 will be. I recently learned that married filing seperately where both earn over $10,000 (which we do) does not allow us to contribute to a Roth IRA. What are the ramifications for 2009 and 2010 contributions we made, assuming 2010 will again be filing MFS? Our financial advisor never informed us of this part of the income limit. Shame on me for not understanding the rules here.


45 Ryan

Jamie, I think you may be mistaken about the income limits for contributions. Here is the info you need: 2010 Traditional and Roth IRA Contribution Limits. If in doubt, contact your financial advisor or a tax professional. You may not have made any errors in your contributions.


46 Clueless about taxes

I always thought the $5K max allowable amount applied to everyone. I wish the rule was more clear when I had completed the transactions online. After reading this, I think I may have exceeded the IRA contribution limits in 2009 and 2010, when I made very little income.

The excess contributions came from when I had transferred shares from a mutual fund into the Roth IRA version of that fund. Can I remove excess contributions (and avoid all penalty fees) by simply converting the entire excess back into the regular mutual fund (non-Roth IRA) version? Thank you in advance for your advice!


47 Clueless About Taxes

I have a few more questions in addition to the one I just posted:

Is it too late to recharacterize my 2009 excess contributions as a Traditional IRA to avoid the penalty fee? And how do I do it for the 2010 excess? Is it possible to do so using the free online tax filing links provided by irs.gov? And in the future, as soon as possible, when I’d like to convert that Traditional IRA back into a Roth IRA again, how do I do so without incurring any fees?

Also, is it possible to apply excess contributions to a PAST tax year instead of future tax years? That’s probably a really stupid question, but I really don’t know anything about taxes. There were many past years where I was eligible to contribute the max to an IRA, but didn’t.

I’m hoping that it’s possible in order to work around any penalty fees and continue contributing the max in future years without having to make up for the past 2 years. I never thought I would owe the IRS any penalty fees as long as I filed my taxes on time every year…Is there some kind of “forgiveness plan” the IRS offers for tax newbies like myself?

-Clueless About Taxes


48 Ryan

Clueless, I recommend speaking with a tax professional or investment advisor about your situation.


49 Bill


Good article, thanks. Quick question. I maxed out my annual contribution for 2010, but was told that rollovers from a traditional IRA to a Roth wouldn’t count towards annual contributions. I am trying to rollover a 401k did half of the converstion last year and planned on doing half this year. Turbo Tax is telling me I have excess contributions. How does the limit work when considering rollovers / conversions in addition to normal contributions? Does the limit change or is the $5,000 annual limit all inclusive?



50 Ryan

Bill, the rollover or conversion of a rollover won’t apply toward your $5,000 annual contribution limit. I’m not sure how to handle thins in TurboTax. I recommend contacting their customer service or support forums to see how you can correctly code this. Best of luck!


51 Ouch

Hi Ryan, and thanks for your help…

My new husband and I are doing our taxes together for the first time this year. He just realized that he has overcontributed to his Roth not only for 2010 ($985) but for 2009 as well ($785.18).

We’re trying to wrap our head around what to do, other than find a new financial advisor, ha ha . 🙂 I believe we understand that we have time to withdraw the overcontribution for 2010 before April 18, 2011, but what do we do with the overpayment for tax year 2009???

AAAAHHHHHH!!!!!!!! Thanks!


52 Ryan

I recommend seeking the advice of a professional tax advisor or even your current financial avisor to help you with the proper paperwork and to make sure it is properly accounted for with the iRS. You may have to pay a small penalty for the excess contributions in 2009, and you will want to take care of that as quickly as possible since the penalties will continue to be assessed with each passing year.


53 Debra

I have a client who made excess Roth contributions in the last two years (without my knowledge). She can still fix the one for 2010 but it is too late to fix 2009. If she doesn’t report it, will the IRS find it and bill her for it? If it matters, the excess contribution is due to lack of earned income.


54 Ryan

The IRS may not find it right away, but there is always the possibility that they will. So if your client lets this problem persist, the penalties could be more severe several years down the road – keep in mind the fees pile up year after year. This isn’t something I would take a chance with. I would fix it ASAP and go to sleep knowing this wouldn’t come back to haunt me years from now.


55 Romel


I am in somewhat similar predicament. Just wondering, what did you and your client end up doing or will be doing? What were or are your courses of action(s)?


56 Debra

She reversed the one for 2010 and has the 2009 one reported (so far) for her 2010 return (when filed). The penalty will cost her $380.


57 Binh Le

Hi Ryan,

My wife and I contributed 5k each to our Roth IRAs in 2010. However, due to a lump sum severance package, our AGI jumped over the income limit for Roth contributions for 2010. I requested our broker withdraw the excess contribution amount minus any losses (8500 for both of us) later in 2010. Do I need to report the initial 10k contribution amount for 2010 on our taxes? Or should we report zero contributions for 2010 because we withdrew the contribution and losses the same year? Thanks.


58 Ryan

Binh, I believe you will be fine because you withdrew your contributions and losses before the tax filing deadline, however, I would contact your broker or accountant for a formal ruling before filing your taxes – it’s always better to have a professional with intimate knowledge of your financial situation give you advice.


59 John


Thanks for the article, hopefully a simple one for you. I was married in 2010 so our combined income made us ineligible to contribute to a Roth which I had been doing, dollar cost averaging in 2010. I removed the excess contribution in March 2011 and associated earnings. Do I report the earnings $300 dollars on this years tax return 2010 or do I wait and report it in my 2011 return? I did not get a 1099-R as the distribution was in 2011.


60 dan


What if I open up multiple Roth IRA accounts with different brokerage firms, and max out each one. How will the IRS ever find out?


61 Ryan

Dan, I believe it’s all tracked through your SSN, which is required when you open a brokerage account and when you file your taxes. The IRS may not notice for quite some time, but if and when they do, you will owe taxes and penalties going back to the original infraction. I also wouldn’t be surprised if it lead to a full blown audit of your tax returns, since it could possibly be classified tax fraud if someone did this and knowingly filed tax returns that didn’t account for all retirement contributions. That said, I’m not sure all of the ramifications, and I recommend speaking with a tax professional for more information.


62 Greenbird

My 401k is maxed out every year. I make too much to contribute to a Roth IRA so I contribute 5k to a traditional IRA with after tax money. I wish this IRA was a Roth….can I switch it to a Roth and then back again to a traditional IRA temporarily so that I can fund it every year?


63 Ryan

Greenbird, you can do a Roth IRA conversion each year. This will allow you to open a Traditional (non-deductible) IRA, then convert it into a Roth IRA. This is a fairly easy process – just make sure you handle the paperwork correctly. Here is more info on how to do a Roth IRA conversion, but if in doubt, seek professional assistance (many banks and brokerages are more than happy to help you with the required paperwork).


64 Debra

Greenbird, you might consider some of these Roth, most notably the HSA – and also life insurance. If you have a qualifying high-deductible insurance plan, you can contribute several thousand dollars a year tax free to an HSA. And, if you ever use this money for medical expenses (copays, deductibles, coinsurance or long term care premiums), the IRS gives you a “free ride” on taxes. It is the only qualified account that gives you a “free ride” on the way in and on the way out. And, if you are healthy enough to still have money in your account at age 65, you can use the money for medicare premiums (in addition to Medicare copays and deductibles). It is also the only qualified account that lets you access your money before age 59.5 (as long as you do so for qualifying medical expenses). You can also do a one-time conversion of IRA money to an HSA (but you won’t get the above the line tax break that you get for an HSA contribution – or the initial IRA contribution).
Permanent life insurance is a good alternative to a Roth (especially for people with families who make too much to contribute to a Roth). You pay the taxes up front (like a Roth) but as long as you follow the rules, you can “use” the cash value tax free during your lifetime and potentially pass a much larger amount to your heirs at your death. If you need life insurance anyway, you may as well buy something that will accumulate cash value that you can “use” during your lifetime. You can have your policy “customized” specifically to build cash value by purchasing the minimum death benefit and maximizing the premium allowed by law. Some insurance agents are now marketing this type of policy as “infinite banking” because it allows you to put enough money into an insurance policy so you can “borrow” from your own policy and pay yourself back, instead of the bank. It does work – and it’s better than a Roth because you don’t have to wait until you are 59.5 to use and “enjoy” your money.


65 Greenbird

Thanks for the insight…..I already have HSA as well, but the permanent life insurance Does sound interesting…I will have to look into that.


66 Debra

Greenbird and others, my first line should have said “Roth alternatives”…you obviously figured it out.


67 Tom


In December of 2010 I rolled over 27k from my Simple IRA to a Roth. In January 2011 I contributed 5k to the same account. Since then, the account has taken a substantial hit, putting it somewhere around 25k.

What I would like to know is should I first undo the 2011 contribution then recharacterize the Roth to a Traditional IRA? If I can undo the contribution will I only get a percentage of the 5k that was initially contributed since the account is at a loss? My guess is I’d only be able to pull out (5k/32k) x (25k). And if this is so, then will I only be able to re-contribute about $3900ish for 2011? Or will undoing that contribution mean I could re-contribute the full 5k?

Also, If all this goes well and the account gets recharacterized by October, is it true that I’d only have to wait one month to convert it back to a Roth or would I have to wait until next year since it’s been less than a year from the original conversion date in Dec 2010.

Any advice would be much appreciated. Thank you for your help.



68 Ryan

Tom, recharacterizing your IRA is certainly an good option if it loses value, but I recommend speaking with a financial planner or an accountant who can review your entire financial position for the year so you can be sure you don’t miss anything. This can be complicated and you want to make sure you get everything right the first time.


69 Debra

Tom, Ryan is right. You seem more concerned about the ability to make a complete Roth contribution this year than the tax consequences associated with your original conversion. If you paid taxes on 27K and the value of that account is now only 25K (after making a 5K contribution), why wouldn’t you want to recharacterize it and pay taxes on a lower amount of money this year? Perhaps your income has increased and you are now in a higher tax bracket? Whatever the case, your tax advisor or financial planner can help you run scenarios and figure out your best option. Good luck!


70 Tom


The December 2010 contribution of 27k was going to be split between 2011 & 2012 for paying the taxes. I do want to recharacterize it this year (before October) but I want to get my 5k 2011 contribution out of the mix first to help simplify things so I’m only left recharacterizing the amount that has yet to have taxes paid. Then when I convert the account back to a Roth in the future I won’t have to worry about figuring out what amount has already had taxes paid on it and what amount hasn’t.
I also understand that by recharacterizing I will lose the option to split up the tax liability between 2 years, so I can either do partial conversions in the future or use funds that I’ve been setting aside to cover the full amount. I am not worried about getting bumped into a higher tax bracket either.


71 Chris

I have roughly $15,000 in my 403(b) account. I may be leaving my job towards the end of the year due to personal reasons. I already maxed out my Roth IRA for the fiscal year 2011. I want to convert my 403 account to a Roth IRA, for 2012. Can i only convert $5000 of the $15000? And if so, do I leave the remaining $10,000 in my 403b account? Any help would be greatly appreciated. Thanks!


72 Ryan

Chris, rollovers don’t count toward your contribution limit, since they were from a different type of retirement fund. So you should be able to rollover the entire amount without penalty. That said, it is always a good idea to speak with an accountant or financial planner if you have any specific questions or doubts about your financial situation, or if you need help making the rollover. This can be a huge benefit in the long run!


73 Debra

If you are losing your job toward the end of the year, then you will have almost a full year of income this year. If you think it may take awhile to find another job, you should should consider waiting until next year to do your conversion (when your income maybe lower). Remember, you pay ordinary income tax on all Roth conversions so you want to do it when you have the money to pay the taxes – and you also want to do it when you are in a low income tax bracket. Another good time to convert is when the market is down – because your tax is based on the value of your 403b at the time of conversion. But conversions do have to be done before the end of the year. If you do a conversion at the end of the year, and then the market goes lower, you can always re-characterize and convert it again at the lower value. Talking to your tax advisor is definitely a good idea!


74 Tom

I rolled over a simple ira to a roth ira, then did the max 5k contribution for 2011. The account has taken a substantial loss and I am planning on recharacterizing the account to a traditional ira so that I do not have to pay the taxes this year.

My question is down the road, how do I figure out how much I owe taxes on when I decide to convert the account back to a roth ira (either in increments of 5k or so or the entire balance). Do I need to figure out the percentage of the account the $5k after tax contribution makes up and pay taxes on a percentage basis as I convert?

For example, if I rolled over 60k of pretax, added 5k after tax, then the account lost value and went to a value of 50k, would I take (( 1 – (5/65)) = 92.3% needs to be taxed…so then of the 50k, if I were to roll over 20k from a new traditional back to a roth ira, .923 x 50k = taxes are owed on $46,150?

Please confirm that I’m looking at this correctly. Appreciate your input


75 Tom


…if I were to roll over 20k from a new traditional back to a roth ira, .923 x 20k = taxes are owed on $18,460?


76 Debra

The best way to figure all of this is to fill out the IRS form 8606. Note that part II includes conversions from Simple to Roth IRA’s. The conversion amount goes in line 16 and the basis (the nondeductible amounts you contributed) goes in line 17. In most cases, the basis will be zero (because more IRA contributions have been tax deferred and are therefore classified as “deductible” not nondeductible). The taxable amount (line 18) is the difference between the two. The form guides you through the taxability in 2010 vs. 2011 and 2012. Since the opportunity to be taxed on 2010 conversions in 2011 and 2012 existed for only one year (2010), you should ignore lines 25a and 25b and assume that your entire conversion will be taxed in the year of conversion (unless you are just now filing for tax year 2010). Also note that Part 1 of this form is for nondeductible contributions and distributions from traditional, SEP and simple IRA’s. Part III of this form is for rollovers from qualified plans to Roth IRAs and in-plan rollovers to roth accounts. And, Part IV is for distributions from Roth IRAs. Important to this discussion is the IRS definition of “basis”. If you read the instructions for form 8606, you’ll see that “basis” is the “nondeductible” contributions to qualified accounts. This is different than every every other definition of “basis”, which is normally your “initial cost” plus any improvements.

It’s also worth noting that professional tax software will take your tax preparer through this process easily,but if you decide to do it yourself, you need to understand the forms and the definitions. If you make mistakes on this form, the IRS will only catch them if it benefits them. It is one of the most difficult forms to understand and one of the easiest ways to leave money on the table at tax time.


77 Grace

My husband and I both have TSP accounts at work. My husband and I have not maxed out the allowed contributions of $16,500 each for this year yet. We have never opened a seperate IRA and currently, our joint income is over $180K. We are interested in openning a Roth and know there are income limits for doing so.

Can we open a traditional this year (2011) and put let’s say, $1,000, to get started and then, convert to a Roth in January 2012?

If yes, after conversion, can we continue to contribute to this Roth despite our income?


78 Ryan

Grace, you can contribute any amount up to the maximum into a non-deductible Traditional IRA, and then convert it to a Roth IRA at any time after that (read more about Roth IRA Conversions). You would need to be aware that you would potentially owe any taxes on earnings in your IRA that occur between the time you make the contribution and you do the Roth IRA conversion.

You would not, however, be able to contribute to a Traditional IRA, convert it to a Roth, then continue making contributions to the Roth IRA if you exceed the Roth income eligibility requirements. If you are considering a Roth IRA conversion, you may find it beneficial to speak with a financial planner to help you make sure you do the paperwork correctly.


79 Grace

Thank you Ryan for your quick response.
Ok, so the Roth IRA is out of the equation since we do not meet the income requirement. So if we both currently contribute the maximum amount allowed for Thrift Savings (TSP) of $16,500 each, and we want to do a separate retirement account outside of work, what kind of retirement plans are available for us to do? Thanks


80 Ryan

Grace, You still have options even if you exceed the income requirements for a Roth IRA. There is a back door method to contributing to a Roth: you can contribute to a non-traditional IRA, up to the max of $5,000 per person. Then you would have two choices: you can leave your contributions in a non-deductible IRA, or you can do a Roth IRA conversion to convert your contributions to a Roth IRA. Many IRA providers will help you with the Roth IRA conversion paperwork, but be sure to consult with an investment advisor if you need help with the process.

Here are some additional ideas: Retirement Investment Strategies After Maxing Out 401k and IRA

81 Grace

So, I have to do this every year? For example, contribute to the traditional IRA in year 1, convert it to Roth in year 2, and repeat, contribute to traditional IRA in year 2, convert it to Roth in year 3, so on…

The tax implication is that when I convert, I just pay the tax on the earnings of the trational IRA, once it is converted to Roth, the earnings will be tax free 20, 30 years down the line? That is the main benefit of the conversion?

Also, am I allowed to contribute to both 403(b) TSP of $16,500 AND traditional IRA of $5,000?


82 Ryan

Hi Grace, The answer is yes to the IRA question and yes to the TSP + IRA.

As a general rule, IRAs have an annual contribution limit of $5,000 per individual. There are income limitations which limit which IRA you can contribute to, for example, deductible IRAs, Roth IRAs and non-deductible IRAs. I recommend reading up on IRA Contribution Limits to better understand the requirements.

If you are only eligible to contribute to the non-deductible IRA, you can still max it out each year then convert it to a Roth IRA. The tax implication, assuming this is your only Traditional IRA, is that you have to pay taxes on the earnings since you made the contribution. If you do the conversion immediately, there won’t be any earnings to be taxed. Calculating your taxes can get a little more complicated if you already have a deductible Traditional IRA. If this is the case, I recommend finding a financial planner to help you determine the tax implications and if this is the right move for you. If you only have Roth IRAs to this point, then go for it.

You will need to repeat the process each year since IRA contributions are on an annual basis. It’s not too big of a hassle though, as it only requires a little bit of paperwork. The benefit of the Roth IRA conversion is as you mentioned – the funds in the account will be tax free when you reach retirement age and begin withdrawals.

Regarding multiple retirement plans: The Thrift Savings Plan and similar employer sponsored retirement plans such as a 401(b), 401(k), etc. are separate from IRAs, which are Individual retirement arrangements. You can contribute to each of these as they don’t overlap in any way. The following article may be helpful in understanding how your retirement accounts work with each other: How Many Retirement Accounts Can You Have?.


83 Bob

Hi Ryan,

In January 2011 I put in $6,000 into my Roth IRA account (I am over 50). TWo weeks later I was laid off and only earned $1,000 in earned income that year. Since I did not go over the “maximum” amount to contribute would this create a red flag with the IRS, especially since you don’t deduct a Roth IRA on your tax returns?


84 Ryan

Bob, I recommend speaking with a tax pro on this one. You need to have earned income in order to qualify for a Roth IRA. So the first $1,000 is probably OK, but unless you had any other earned income, you may not be eligible to contribute to the IRA, which could get you into hot water later on if the IRS ever finds out. I have no idea what the odds of them catching this are, but it’s better to take the hit now than to be caught later and have to pay penalties and fees, which could add up to a large amount if this isn’t caught for a long time.


85 Debra Beasley

I recommend reversing your contribution before you file your taxes for 2011. Otherwise, you’ll have to pay a 6% excise tax for each year that you have the excess contribution. Since you were unemployed most of the year, you should be glad to have $5000 extra (I know I would). If you have other IRA funds, this would have been a good year to convert some of them to a Roth (while your income tax rate was low). Unfortunately, the deadline for conversions was Dec 31 – but it may be something to consider for next year, if you are still unemployed (or in a low income tax bracket). If you do decide to do a Roth conversion, you want to do it when the market is down (or you think it is down). And, if the market goes down a lot more (or your income goes up significantly – or you just don’t have the money to pay the taxes, you can always re-characterize your Roth money (back to an IRA) as long as you do it before you file you next tax return (counting extensions). So, if you file an extension, you get an extra six months to re-characterize.


86 Lee

Hi Ryan,

I got married last year, 2011, and because of income, I am unable to contribute to a Roth IRA. However, my wife was eligible prior to us getting married. Prior to us getting married, she had an automatic payroll deduction into her Roth IRA, including the early part of 2011. For the 2011 tax year, we will file jointly. Do we need to move out the contributions that was made prior to us getting married for 2011 to avoid “excess contributions.”


87 Ryan Guina

Lee, this is a situation where visiting with a tax professional or financial planner is a good idea, as he or she would have full access to your entire financial situation, and will be able to offer professional advice tailored to your exact situation.


88 john2491


I got a tax related question on my ROTH IRA. I did not make any taxable compensation in 2011 but I made a $5000 ROTH contribution from my saving. The tax law does not allow that so I need to withdraw that amount before the April 17. I added around $300 (earnings from previous years contributions) to buy MIPS with a total cost of around $5300. The market value of MIPS now is around $2300. There is no earning/dividend generated by MIPS. My question:
Do I just sell all MIPS stock and withdraw the proceed before Apr 17 to avoid penalty? (which is much less than $5000 2011 ROTH contribution)
Also, do I need to deduct the $300 from the proceed since I included earnings from previous years contributions to buy MIPS?

Thanks for your advice.


89 John

I am attempting to file my 2011 taxes after having to file an extension due to working overseas. I maxed out my Roth IRA and Turbo Tax is informing me that I am making an excess contribution as I have $0 income from the US. This is even after declaring my foreign income, which is well over the amount contributed to my Roth. Should I convert the money to a traditional IRA?


90 Ryan Guina

John, I don’t have a firm answer for you as your situation is one I haven’t dealt with before. I recommend speaking to a tax pro for more specific info on this scenario.


91 Debra Beasley
92 Alex Green

Hi, I just found out (Nov 15th 2013) that I mistakenly made contributions for 2011 ($5000 – Dec 30th 2011), for 2012 ($5000 April 12th, 2013) and for 2013 ($5000 April 12th, 2013). I will take out the 2013 contribution and I understand there will be no penalty but I will have to pay taxes on the interest. I understand that I am supposed to pay $600 in fees for the 2011 contribution and $300 in fees for the 2012 contribution but what else do I have to pay?
1) Specifically, do I need to calculate earnings on the 2011 and 2012 contributions and then pay taxes on them? Do I need to withdraw those earnings as well?
2) Do I have to pay 10% early withdrawal fees on 2011 and 2012 earnings
3) What other forms need to be filled out?


93 Ryan Guina

Alex, this is a situation where I recommend speaking with a tax professional to help guide you through the process. It may cost a little bit of money, but it’s essential to get this right the first time to avoid further issues.


94 Catherine

I contributed $6,000 to a Roth IRA at the beginning of 2013, as I have done every year since turning 50. (There was some confusion with my broker as to if this was for tax year 2012- which I thought, or 2013.) AFTER filing taxed for 2013, knowing that my income was too high, I was sent a tax form from my investment company stating that the contribution was made for tax year 2013. How do I now reverse/withdrawal (4 months after filing) and I assume there will be a penalty. I will be making too much this year as well, so rolling forward isn’t a possibility.


95 Ryan Guina

Catherine, you may be able to recharacterize the contribution as a Traditional IRA, but there may be some tax implications. You should work with your broker or a tax professional to handle this correctly. Going forward, you may consider contributing to a non-deductible Traditional IRA instead of a Roth IRA if you believe your income may be too high to contribute to a Roth IRA. You can always roll your non-deductible IRA into a Roth IRA should you decide to do so. There may be some additional tax implications to doing a rollover, so be sure to work with your accountant or a tax professional or investment advisor to make sure everything is handled correctly. Best of luck!


96 Janine Hicks

I opened a Roth IRA 5/2014. I was not aware of the limit so I put $10,000 in. Now at tax time I find out I have an excess of $3500.00 that needs to be taken out to avoid penalties. My question is do I have to reinvest the $3500 or can I just keep the cash. Trying to pay off a debt.


97 Ryan Guina

Janine, you can use the cash however you see fit. So you can use it to pay any debts, or you can use it as a contribution to your 2015 Roth IRA, or for any other purpose.


98 Michael

Hello, I was married in October 2014 and had already contributed $3,200 to a ROTH IRA by then. Now that we are married, our combined incomes put us over the MAGI limit. Do I need to withdrawl that contribution? Can I just transfer it to my existing rollover? Prior to getting married I was within the limit.


99 Sam


I recently returned back to grad school and thus my income dropped dramatically and so was able to contribute to a Roth. I did over contribute accidentally (from an auto deposit which I didn’t monitor close enough).

Now this year I didn’t have to file taxes as my student stipend income was not qualified earnings. Do I need to report the over contribution in this case that I didn’t file taxes? I will be a student for a few more years until I get my phD and don’t anticipate filing taxes for some time. Would the best way to handle this be to apply it forward to next year. Or do nothing ? Am I on the hook for the penalty even though I didn’t have enough income to file taxes? Uncertain about the minimum income rules as it pertains to over contributions.


100 Ryan Guina

Sam, I recommend speaking with a tax professional about this,especially since there may be other factors that affect your situation. I don’t want to give only partial information and lead you in the wrong direction.


101 Daren Smith

I contributed to a MF company for 2014 last year when I meant for it to be credited to 2013. This year I contributed for 2014 also. I got notices from both MF companies that I contributed $5,500 for 2014.
Am I out of luck as far as 2013 goes? I know that I can re-designate my most recent contribution to 2015 but I hate losing 2013 altogether.


102 Ryan Guina

Daren, yes, I believe you are out of luck for 2013. You should designate the second 2014 contribution to 2015 so you don’t get dinged by the IRS.


103 R. Thomas

I have a question I hope someone can answer. In April of 2016 I contributed $6,500 to my Roth IRA for 2016 (I’m over age 50). Working only part-time and retiring as of September of this year, I earned a total of $7,450 in wages, but I contributed $4,750 of my wages to my 401K. This left me $2,700 in “adjusted earnings.” I have rental income, but having no other “wages” to report, I am wondering if I have made an excess contribution to my Roth IRA. My question is, “Does the contribution made to my 401K reduce my “earned income” (i.e., “compensation”)? Thanks for any guidance on the subject!

And I need to add that my contributions to my 401K were pre-tax elections (not “Roth deferral elections).


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