Tax Implications for Contributing Too Much to Roth IRA

If you put too much money in your Roth IRA this year, the IRS will hit you with a tax penalty. Your Roth contribution limit depends on your income. If your income is substantially more than you expect, it may reduce the amount you can put in your Roth. A big bonus or a successful stock sale might be all it takes to throw you off.


The maximum you can contribute to a Roth is $5,000 as of 2012 -- $6,000 if you're over 49 -- but several factors can lower your limit. If your earned income for the year is lower than $5,000, that income becomes the limit. When you file a joint return, you get a reduced limit if your modified adjusted gross income hits $173,000. You can't contribute at all when your AGI reaches $183,000. Other filing statuses have different dollar limits.


You pay 6 percent on the excess money you contributed to the Roth. If you put in $1,000 over the limit, for example, the IRS expects an extra $60 on your bill. Every year the $1,000 stays in the account, you pay the 6 percent tax on the money. If you contribute too much in later years, you pay the same 6 percent penalty on that money too. As long as it's in the account, you owe tax.


If you realize you put too much money in your Roth this year, you have until your tax return is due next year to take the money back out. Withdraw the money and you pay no penalty, as long as you also withdraw any interest it earned. You will have to pay tax on the earnings. If you file a return, then realize you need to make a withdrawal, you have until six months after next year's due date to take out the excess and amend your return.

Other Options

If you contributed $1,000 excess this year, a simple solution is to contribute $1,000 less than your limit next year. You pay 6 percent excess on this year's taxes, but next year's lower amount lets you turn the excess into a regular contribution. For that year and subsequent years, there's no longer any tax on the excess. You don't have to take out the earnings, so the tax implications are all resolved.