Roth IRA Contribution Penalty: 6% Tax, Fixes, and Form 5329

If you put more into a Roth IRA than the rules allow, the IRS charges a 6% excise tax on the excess amount, and that Roth IRA contribution penalty applies again every year the excess stays in the account. You can wipe it out completely by withdrawing the excess, along with any earnings it produced, before your tax filing deadline for that year. Miss that window and you owe 6% for the year of the mistake and for each year afterward until you remove or absorb it.¹

What Counts as an Excess Contribution

Three separate ceilings govern how much you can put into a Roth IRA, and breaking any one of them creates an excess.

The first is the annual dollar cap. For 2026, your combined contributions across all traditional and Roth IRAs cannot exceed $7,500, or $8,600 if you’re 50 or older by year-end.² Note the word combined: putting $5,000 into a traditional IRA and $4,000 into a Roth in the same year leaves you $1,500 over, even though neither account alone hit the cap.

The second is earned income. Your contribution can’t exceed your taxable compensation for the year. Earn $3,000 and that’s your ceiling, regardless of the dollar cap. Investment income, rental income, and Social Security don’t count as compensation here.²

The third, and the most common source of accidental excess contributions, is the income phase-out. Even with plenty of earned income, your Modified Adjusted Gross Income can reduce or eliminate your Roth eligibility. In 2026, single filers lose eligibility entirely at $168,000 MAGI, and joint filers at $252,000, with reduced contributions in a band below each threshold. Married filing separately has an almost nonexistent window, with the phase-out running from $0 to $10,000.³ This is where people get caught: you contribute in January based on last year’s income, then a raise, bonus, or capital gain pushes your MAGI past the line, and part or all of what you already contributed is now excess.

How the 6% Penalty Works

Under 26 U.S.C. § 4973, the IRS applies a 6% excise tax to the excess amount as of the end of each tax year the money is still in the account.¹ The math is simple: 6% of whatever excess remains at year-end.

The problem is that it keeps coming. A $4,500 overcontribution runs $270 the first year, another $270 the second, another the third. The tax doesn’t compound mathematically, since it’s always 6% of the remaining excess rather than 6% of the excess plus prior penalties. But it stacks. Three years in, that $4,500 mistake has cost $810, or an 18% cumulative hit. People often don’t notice an income phase-out problem for years, and the meter runs the whole time.

One narrow guardrail exists: the excise tax for any year can’t exceed 6% of the total value of all your IRAs at year-end.⁴ For most people, that cap never comes into play, and the straight 6% is what applies.

Fixing It Before the Tax Deadline

The cleanest fix erases the penalty entirely. Withdraw the excess contribution, plus the earnings it generated, before your tax return due date. For a 2025 excess, that’s April 15, 2026. File an extension and you have until October 15, 2026.⁵ A timely withdrawal treats the excess as though it was never contributed, and no 6% tax applies for that year.

The earnings piece matters. When you pull the excess, you also have to remove the net income attributable to it, which is the share of the account’s gain or loss tied to that money while it sat there. Your custodian handles the calculation using the IRS formula, which allocates a proportional share of the account’s performance to the excess contribution.⁶ If the account lost money during the period, the attributable amount can be negative, and you’ll pull out less than you put in.

Those removed earnings count as taxable income in the year of the original contribution. One piece of good news for younger savers: the SECURE 2.0 Act removed the 10% early distribution penalty that used to apply to those earnings when the account holder was under 59½, as long as the correction is timely.⁵

Fixing It After the Deadline

Once April 15 (or October 15 with an extension) passes, you owe the 6% for that year. There’s no undoing it. But you have three ways to stop the penalty from recurring.

Withdraw the Excess

You can pull the excess amount out at any time to prevent the 6% from applying in the following year. With a late correction, the IRS doesn’t require you to calculate or remove attributable earnings. You withdraw just the excess contribution itself, and the earnings stay in the account.⁵ You still owe 6% for each year the excess was present, but future-year penalties stop.

Absorb the Excess in a Future Year

If your income drops and you become eligible to contribute again, the IRS lets you absorb the prior excess by under-contributing that year. Say you overcontributed by $2,000 in 2025 and your 2026 limit is $7,500. Contribute only $5,500 in 2026, and the remaining $2,000 of room absorbs the earlier excess.⁵ No withdrawal required. You still owe 6% for the original year and any year the excess sat uncorrected, but the penalty stops after absorption. This works well when a one-time bonus bumped you over the MAGI line and you expect to fall back within range. It won’t help if your income consistently exceeds the Roth threshold.

Recharacterize as a Traditional IRA Contribution

You can also recharacterize the Roth contribution as a traditional IRA contribution. Your custodian moves the excess amount plus attributable earnings from the Roth to a traditional IRA through a trustee-to-trustee transfer. If completed by the tax filing deadline including extensions, the IRS treats the money as though it was originally contributed to the traditional IRA.⁵ Recharacterization only works if you’re eligible to make a traditional IRA contribution for that year and haven’t already maxed it out. For a 2025 contribution, the cutoff is April 15, 2026, or October 15, 2026 with an extension.

Reporting on Form 5329

Form 5329 (Additional Taxes on Qualified Plans and Other Tax-Favored Accounts) is where the 6% tax gets reported, filed alongside your Form 1040 by the normal deadline including extensions.⁷ You need to file it any year you owe the tax, and in later years when a prior excess still carries forward.⁸

Skipping the form doesn’t make the tax disappear. It leaves the clock unstarted. A filed return generally gives the IRS three years from filing to raise an issue; without Form 5329 that window may extend to six years, keeping you exposed long after the mistake.⁷ Even when a timely correction leaves you owing nothing, filing the form with a zero balance is worth doing for exactly that reason.

How to Avoid It Next Time

A few patterns produce most accidental excess contributions. A year-end bonus, stock sale, or freelance payment pushes MAGI past the phase-out range after you’ve already contributed. Automatic recurring contributions keep flowing after a job change or income shift. Contributions to both a traditional and a Roth IRA together exceed the combined limit. A year of low earned income makes the dollar cap irrelevant and creates excess at a much lower level.

The simplest prevention is timing. You have until April 15 of the following year to contribute for any given tax year, so there’s no reason to front-load in January if your income picture is uncertain. Contribute throughout the year if you prefer, but leave headroom and top off in December or early the next year once your numbers are firm.

1
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
2
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
3
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
4
Office of the Law Revision Counsel. 26 U.S. Code 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
5
Internal Revenue Service. Publication 590-A, Contributions to Individual Retirement Arrangements
6
eCFR. 26 CFR 1.408-11 – Net Income Calculation for Returned or Recharacterized IRA Contributions
7
Internal Revenue Service. Instructions for Form 5329
8
Internal Revenue Service. About Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts