The 6% excise tax on excess IRA contributions is an annual penalty under 26 U.S.C. § 4973 that applies to any amount you contribute above your allowed IRA limit for the year. It repeats every year the excess remains in the account.1Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities If you catch the overage before your tax filing deadline and pull it out along with any earnings it generated, you owe nothing. Miss that window, and the 6% hits your return for the year of the mistake and every year after until the excess is removed or absorbed.
What Counts as an Excess IRA Contribution
An excess contribution is anything you deposit into a traditional or Roth IRA above what the law allows for the year. For 2026, the combined limit across all of your traditional and Roth IRAs is $7,500, or $8,600 if you are age 50 or older. If your taxable compensation for the year is lower than those caps, your compensation is your limit.2Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026; IRA Limit Increases to $7,500
Roth IRAs add an income wrinkle. Your ability to contribute phases out with modified adjusted gross income. The 2026 phase-out ranges are $153,000 to $168,000 for single or head of household filers, $242,000 to $252,000 for married filing jointly, and $0 to $10,000 for married filing separately. Above the top of the range, no Roth contribution is allowed at all.3Internal Revenue Service. Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs Contributing the full $7,500 when your income only allows $3,000 leaves $4,500 as excess, even though you stayed under the nominal cap. Plenty of people trip on this because they don’t check income limits until they prepare their return months later.
Two other situations quietly create excess contributions. You need earned income (wages or self-employment earnings) to contribute at all, so depositing more than you actually earned makes the overage excess. And botched rollovers count: the IRS allows only one indirect IRA-to-IRA rollover in any 12-month period across all of your IRAs. A second indirect rollover inside that window turns the entire amount into an excess contribution.4Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Direct trustee-to-trustee transfers aren’t subject to that limit.
How the 6% Is Calculated and Why It Recurs
The tax is 6% of the excess contribution amount, measured at the end of the tax year. One safeguard: the tax cannot exceed 6% of the fair market value of the account on December 31. If you over-contributed $10,000 but the account fell to $4,000, the tax is 6% of $4,000, or $240.1Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
This is not a one-time fine. The 6% applies again every year the excess still sits in the account as of December 31. A $5,000 excess ignored for three years generates $300 per year, or $900 total, on top of any income tax consequences.
Fixing an Excess Contribution Before the Filing Deadline
Withdrawing the excess before your tax return is due eliminates the 6% penalty entirely. The deadline is the due date of your federal return, including extensions. For a 2025 return, that means April 15, 2026, or October 15, 2026 with an extension.5Internal Revenue Service. Retirement Topics – IRA Contribution Limits
You can’t just pull out the original excess. The withdrawal must also include any earnings the excess generated in the account, which the IRS calls the “net income attributable” to the contribution. Your custodian usually calculates it when you request a return of excess contribution.6eCFR. 26 CFR 1.408-11 – Net Income Calculation for Returned or Recharacterized IRA Contributions If the account lost money during the period, the net income attributable can be negative, and you withdraw less than the original excess.
When you remove the excess and its earnings before the deadline, the excess is treated as though it was never contributed. The earnings portion is taxable in the year the contribution was made, and if you are under 59½, those earnings may also face the 10% early withdrawal penalty.7Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
Recharacterization for Roth Overages
If you contributed to a Roth IRA and your income turned out to be too high, you can recharacterize the contribution as a traditional IRA contribution instead. Traditional IRAs have no income limit for contributions, only for deductions. The recharacterization must happen by the tax filing deadline, including extensions. Your custodian moves the contribution and its attributable earnings directly to the traditional IRA, and you report it as if you had contributed to the traditional IRA to begin with. The contribution may or may not be deductible depending on your income and whether you have an employer plan.
What to Do if You Miss the Deadline
Once the filing deadline passes with the excess still in your account, you owe the 6% for that year. Two paths stop the bleeding going forward.
Withdraw the Excess Late
You can still pull the excess out after the deadline. Doing so stops the 6% from repeating next year. You’ll owe the penalty for the year you missed, but the clock stops there. If you filed your return on time without correcting the excess, IRS instructions provide a limited grace period: you can make the withdrawal within six months of the original due date (without extensions), file an amended return with “Filed pursuant to section 301.9100-2” written at the top, report any earnings from the excess, and include an amended Form 5329 showing the correction.8Internal Revenue Service. Instructions for Form 5329
Absorb the Excess in a Future Year
If you have room in a later year, the excess can be absorbed by contributing less than the limit (or nothing) that year and letting the prior excess fill the gap. You still owe 6% for each year the excess existed, but once it’s fully absorbed, the recurring penalty ends. This works best when the excess is small and withdrawing it would trigger more tax or hassle than paying the 6% once.
Reporting on Form 5329 and Paying
The 6% excise tax is reported on IRS Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.”9Internal Revenue Service. About Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts Traditional IRA excess contributions go in Part III; Roth IRA excess contributions go in Part IV.10Internal Revenue Service. Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts Each section runs the same calculation: prior-year excess not corrected, plus any new excess for the current year, minus any withdrawals or absorptions, multiplied by 6% (or capped at 6% of the account’s year-end value). The result flows to Schedule 2 of your Form 1040.
To fill out these sections you need year-end statements and Form 5498 from your custodian, which reports total contributions and fair market value.11Internal Revenue Service. Form 5498 – IRA Contribution Information Compare those numbers to your own records to pin down the exact excess.
Most people attach Form 5329 to their Form 1040. If you’ve already filed and later realize you had an excess, you can file Form 5329 as a standalone document, but it cannot be e-filed in that form. Sign it, include your address, and mail it to the same IRS address where you would file your Form 1040.8Internal Revenue Service. Instructions for Form 5329
Payment works the same as any balance due. Through IRS Direct Pay, select “Balance due” and choose “Retirement plans (5329)” under the “Apply payment to” menu.12Internal Revenue Service. Types of Payments Available to Individuals Through Direct Pay You can also mail a check with Form 1040-V.13Internal Revenue Service. About Form 1040-V, Payment Voucher for Individuals Keep your filed Form 5329, payment confirmation, and contribution records for at least three years from the date you filed.14Internal Revenue Service. How Long Should I Keep Records
The Trap for Unfiled Form 5329
Excess contributions can quietly turn catastrophic if you never file Form 5329. The three-year statute of limitations for tax assessment only begins when you file the relevant return, and the IRS and the Tax Court treat Form 5329 as a separate return for the excise tax. If you never file it, the statute never starts, and the IRS can assess the 6% at any time, even decades later.15Internal Revenue Service. Statute of Limitations Processes and Procedures
Filing your regular Form 1040 does not start the clock on the excise tax if Form 5329 was not included. People who made excess contributions years ago and ignored the problem sometimes discover this during an audit. The fix is straightforward but expensive: file Form 5329 for every year the excess existed, pay the accumulated 6% penalties, and start the statute running. Waiting only makes it worse.
401(k) Excess Deferrals Follow Different Rules
The 6% excise tax under Section 4973 does not apply to 401(k) plans, 403(b) plans, or other employer-sponsored retirement accounts.1Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities Those accounts have their own limits and their own consequences. For 2026, the elective deferral limit for 401(k) plans is $24,500, with an additional $8,000 catch-up for participants age 50 and older, and $11,250 for those aged 60 through 63.2Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026; IRA Limit Increases to $7,500 Excess 401(k) deferrals must be returned to you by April 15 of the following year to avoid being taxed twice, once in the year contributed and again when eventually distributed.16Internal Revenue Service. 401(k) Plan Fix-It Guide – Elective Deferrals Werent Limited to the Amounts Under IRC Section 402(g) This most often affects people who switch jobs mid-year and contribute to two separate employer plans without tracking the combined total.