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If your total IRA contributions (both traditional and Roth combined) are greater than your allowed amount for the year, and you haven't withdrawn the excess contributions, you'll owe a 6% penalty tax on the excess contribution and you must complete Form 5329.

This penalty tax will be assessed every year on all excess contributions (including those from prior years) until you withdraw the excess contributions.

Avoid paying the penalty tax by withdrawing the excess amount before the due date. Remember: Any earnings (including interest or other income) on the withdrawn contributions should still be included in your gross income.

An excess contribution could be from your contribution, your spouse’s contribution, your employer’s contribution, or an improper rollover contribution.

If your employer makes contributions on your behalf to a SEP IRA, see chapter 2 of Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).

Read IRS Publication 590-A Contributions to Individual Retirement Arrangements (IRAs), pages 33 and 34, for more information.

Not withdrawing the excess amount:

If you don't withdraw the excess amount, you'll pay the penalty again the following year. However, if you make an IRA contribution that's less than your limit in a given tax year, a portion of the previously made excess contributions will apply toward your contribution limit for that tax year, and your total excess contributions for prior years will be reduced by the same amount.

Where to enter the excess amount on Form 5329 from year to year:

Each year you must enter the amount of excess traditional IRA contributions from Line 16 of the prior year's Form 5329 on that year's Form 5329 Line 9. And each year you must enter the amount of excess Roth IRA contributions from Line 24 of the prior year's Form 5329 on that year's Form 5329 Line 18.

Traditional IRA Information

What is an excess contribution?

Generally, it is the amount contributed to your traditional IRAs for the year that is more than the lesser of:

  1. $6,000 ($7,000 if you are age 50 or older) or
  2. Your taxable compensation for the year

The taxable compensation limit applies whether your contributions are deductible or nondeductible. Contributions for the year you reach age 70 1/2 and any later year are also excess contributions.

Tax on excess contributions:

You must pay a 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. The tax can't be more than 6% of the combined value of all your IRAs as of the end of your tax year.

The additional tax is figured on Form 5329. For information on filing Form 5329, see reporting additional taxes.

Excess contributions withdrawn by the due date of the return:

You won't have to pay the 6% tax if you withdraw an excess contribution made during a tax year including interest or other income earned on the excess contribution. Complete your withdrawal by the date your tax return for that year is due, including extensions.

How to treat withdrawn contributions:

Don't include in your gross income an excess contribution you withdraw from your traditional IRA before your tax return is due if both of the following conditions are met:

  1. No deduction was allowed for the excess contribution.
  2. You withdraw the interest or other income earned on the excess contribution.

Take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. If there was a loss, the net income you must withdraw may be a negative amount.

In most cases, the net income you must transfer will be determined by your IRA trustee or custodian. To determine the applicable net income you need to withdraw, use the same method used in worksheet 1-3.

If you filed your previous-year tax return on time without withdrawing an excess contribution you made in that year, you can still have the contribution returned to you within six months of the due date of your previous-year tax return, excluding extensions. If you do, file an amended return with filed pursuant to section 301.9100-2 written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return. For example, if you reported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting that the withdrawn contributions are no longer treated as having been contributed.

How to treat withdrawn interest or other income:

Include interest or other income that was earned on the excess contribution in your gross income. Report it on your return for the year in which the excess contribution was made. Your withdrawal of interest or other income might be taxed by 10% on early distributions discussed in Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs).

Form 1099-R:

You'll receive Form 1099-R, which indicates the amount of the withdrawal. If the excess contribution was made in a previous tax year, the form will indicate the year in which the earnings are taxable.

Roth IRA Information

Tax on excess contributions:

  1. Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or properly converted from a traditional IRA or rolled over from a qualified retirement plan, as described later) that are more than your contribution limit for the year; plus
  2. Any excess contributions for the preceding year, reduced by the total of:
    • any distributions out of your Roth IRAs for the year, plus
    • your contribution limit for the year minus your contributions to all your IRAs for the year.

Withdrawal of excess contributions:

Any contribution withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment applies only if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made.

If you timely filed your previous-year tax return without withdrawing a contribution that you made that year, you can still have the contribution returned to you within six months of the due date of your previous-year tax return, excluding extensions. If you do have the money returned to you, file an amended return with filed pursuant to section 301.9100-2 written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return.

Applying excess contributions:

If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year.


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