An IRA overcontribution happens when you contribute more than allowed to your IRA in a given year. Overcontributions can result in IRS penalties if not corrected. This article explains how overcontributions happen, contribution limits, how to fix them, and where to get more help.
What is an IRA overcontribution?
An IRA overcontribution occurs when more is deposited into an IRA than the IRS allows for the year. Overcontributions can happen for several reasons, including:
Your annual contributions exceed the IRS limit for your age or earned income
You contributed more than you earned in income
A contribution was made after the IRA owner's date of death
A required minimum distribution (RMD) was incorrectly rolled over
An ineligible rollover or excess transfer was deposited
You contributed to a Roth IRA, but your modified adjusted gross income (MAGI) exceeded the income limit enforced by the IRS
Note: Overcontributions can happen in Traditional, Roth, or SEP IRAs.
IRA contribution limits
Total contributions to all IRAs (Traditional and Roth combined) for each tax year cannot exceed these limits:
Traditional and Roth IRAs (2024 and 2025):
Under age 50: $7,000 or your earned income, whichever is less
Age 50 or older: $8,000 or your earned income, whichever is less
SEP IRAs:
2025: Up to 25% of compensation, or $70,000 (whichever is less)
2024: Up to 25% of compensation, or $69,000 (whichever is less)
Tips:
Total contributions (between all Traditional and Roth IRAs) cannot exceed these contribution limits. If you have a Traditional IRA and a Roth IRA, you cannot exceed the yearly contribution limits (depending on age) between both IRAs.
Click here to view the published IRS IRA Contributions limits.
Correcting an IRA overcontribution
If you overcontribute, it's important to correct the excess promptly to avoid a 6% IRS penalty for each year the excess remains in your IRA. M1 provides three ways to address overcontributions:
1. Remove the excess contribution before the tax deadline
If you correct the excess before your tax deadline (including any extensions), you’ll avoid the 6% excise tax.
How to remove the overcontribution plus net income attributable (NIA):
Select Move Money
Choose One-Time Cash Transfer.
Enter the amount of your excess contribution
Select Excess Contribution Removal, Before Tax Filing Deadline as the withdrawal reason.
Select the withdrawal/tax year.
Enter the Net Income Attributable (NIA).
Review and confirm your transfer to complete the process.
Notes:
You must remove both the excess plus any earnings (or minus losses) on that excess.
Earnings may be subject to income tax and an early withdrawal penalty if you’re under age 59½.
If you’ve already filed your taxes, you may need to file an amended return after removing the excess.
2. Remove the excess contribution after the tax deadline
If you miss the tax deadline (including extensions), you can still correct the excess, but the process is different:
How to remove the excess after the deadline:
Select Move Money
Choose One-Time Cash Transfer.
Enter the amount of your excess contribution
Select Excess Contribution Removal, After Tax Filing Deadline as the withdrawal reason.
Review and confirm your transfer to complete the process.
Key Points:
Only the excess needs to be removed (no earnings/loss calculation required).
The removed excess may be taxable and subject to a 10% penalty if you’re under age 59½, depending on your total contributions for the year.
You may also still be assessed the 6% IRS penalty for the year(s) the excess remains.
3. Carry forward the excess to a future year
You may carry forward the excess contribution by reducing your allowable IRA contribution for the next year by the amount of the overcontribution.
How it works:
If you exceed the annual limit, you can contribute less the next year to offset the excess.
Example: If your limit is $7,000 and you overcontributed by $1,000, limit the following year’s IRA contribution to $6,000.
Important:
You will owe a 6% excise tax for each year the excess remains.
The carry forward cannot be recharacterized between Traditional and Roth IRAs.
You must qualify to contribute to an IRA the following year to use this option.
How to calculate Net Income Attributable (NIA)
NIA = Excess contribution x ((Adjusted closing balance − Adjusted opening balance) ÷ Adjusted opening balance)
Adjusted opening balance is an IRA’s opening balance at the beginning of the period the excess was contributed, including any contributions, transfers, rollovers, or recharacterizations in the IRA since the excess contribution was made.
Adjusted closing balance is an IRA’s closing balance prior to the removal of the excess, plus any distributions (including rollovers, transfers, and recharacterizations) taken from the IRA during the period the excess was in the account.
Note: M1 cannot calculate your NIA on your behalf. Learn more about calculating your Net Income Attributable.
Tips & guidance on correction methods
Act quickly: Removing the excess before the tax deadline is often the least complicated and avoids penalties.
Consider your eligibility: If you expect to be ineligible to contribute next year, it may be best to remove the excess instead of carrying forward.
Review IRS impacts: Penalties and tax impacts can vary. Consult a tax professional for specific guidance (M1 does not provide tax advice).
M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
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This content was generated using artificial intelligence and is intended for informational and educational purposes only. While reasonable efforts are made to ensure accuracy, AI-generated outputs may omit key context; and should not be construed as financial, investment, legal, or tax advice. Users should independently verify all information and consult a qualified professional before making any financial decisions.
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