Contributing to an IRA is a smart move for retirement savings, but if you accidentally put in more than the IRS allows, you could face penalties. The good news? There are ways to fix an overfunded IRA — whether you catch it before or after the tax deadline.

Here’s what you need to know to correct the mistake and avoid unnecessary penalties.

What happens if you overfund your IRA?

The IRS sets annual contribution limits for IRAs. For 2024, the limits are:

• $7,000 for individuals under 50
• $8,000 for individuals over 50

If you contribute more than these limits, the IRS applies a 6 percent penalty tax on the excess amount you contributed. You’ll get hit with this penalty each year until you remove the excess amount or correct the issue. For example:

• If you overfunded your traditional or Roth IRA by $2,000 and don’t fix it by the tax filing deadline (April 15, 2025), you’ll owe $120 per year (6 percent of $2,000) for as long as the excess remains in your IRA.

• If you overfund a traditional IRA, you won’t be able to deduct those excess contributions from your income like you normally would. 

How to fix overfunding your IRA before the tax filing deadline

If you catch the overfunding issue before April 15, 2025, you can avoid the penalty by doing one of the following.

Withdraw the excess contribution and earnings

The easiest way to fix an overfunded IRA is to withdraw the excess contribution and any earnings it generated.

To do this, reach out to your IRA provider and ask for a corrective distribution. Let them know you’ve contributed too much to your account and ask for their specific process to fix the issue, including any required forms you might need to fill out.

Keep in mind that the withdrawal must include both the excess contribution and any earnings or losses associated with it. Calculating those earnings involves the net attributable income (NIA) formula, which your plan administrator can help determine. They’ll handle the math, calculate the earnings and return both the excess contribution and the associated earnings to you.

Since this process can take time, it’s best to reach out to your plan administrator as soon as you realize the mistake.

While this option helps you avoid the 6 percent overfunding penalty, you may still face taxes on the withdrawal. The original contribution itself isn’t subject to taxes but the earnings portion is taxed as ordinary income.

Here’s an example. Let’s say you contributed $8,000 to your IRA when your limit was $7,000. If that extra $1,000 grew to $1,100 due to investment gains, you’ll need to withdraw the full $1,100. You won’t owe taxes for withdrawing the $1,000 excess contribution, but the $100 in earnings will be subject to income tax.

However, you’ll be able to avoid the 10 percent early withdrawal penalty that usually applies to distributions before age 59½. According to the IRS, you won’t have to pay the 10 percent early withdrawal penalty on a corrective IRA distribution so long as you remove the contribution and any related earnings before your tax return deadline, including extensions.

If you’ve made excess contributions in your retirement account, you’ll likely need to file Form 5329 to report and pay any additional taxes you owe on the withdrawal. According to the IRS, you’ll need to attach Form 5329 and enter the total additional taxes on Schedule 2, Line 8 of your tax return.

Recharacterize the contribution

Another option is to recharacterize the excess contribution. In this case, you can ask your financial institution to recharacterize the excess as a traditional IRA contribution instead of a Roth contribution, or vice versa. Recharacterization is also helpful if your income changed and you are or aren’t eligible for a Roth IRA now.

If you missed the deadline to recharacterize an IRA contribution, you may still be allowed to fix it so long as you filed your tax return on time and took corrective action within six months of the due date. For a return due April 15, 2025, the deadline is Oct.15, 2025.

To recharacterize, notify your IRA provider, provide any required information and ensure the IRA provider transfers the funds.

Apply the excess to next year’s contribution

If neither of these options works, you may be able to carry the excess forward to the following tax year. So instead of withdrawing the excess amount, you apply it to next year’s contribution limit instead.

This strategy works best if you plan to contribute less than the maximum next year. The 6 percent penalty still applies for 2024, but it won’t continue in 2025 so long as you don’t exceed next year’s limits.

For example, if you overfunded your IRA by $1,000 in 2024 but plan to contribute $5,000 in 2025 (instead of the full $7,000 limit), the extra $1,000 will count toward 2025 and stop the penalty moving forward.

If you go this route, there’s no need to worry about withdrawals. Just complete and submit Form 5329 with your next tax return to calculate the tax owed on the excess contribution.

How to fix overfunding your IRA after the tax filing deadline

If you miss the April 15, 2025, tax filing deadline but before the Oct. 15, 2025, deadline, you can still fix overfunding. After the October extension, you’ll owe the 6 percent penalty for the 2024 tax year regardless, but you can prevent further penalties by taking action as quickly as possible.

Remove the excess contribution

The first option is withdrawing the excess contribution. You can still withdraw the contribution within six months of your tax return’s due date — not including extensions — even if you’ve already filed. After the excess contribution is removed, you won’t face the penalty in future years.

Otherwise, if you don’t remove the excess, the penalty applies every year until you fix it.

File an amended tax return

If you’ve already filed your tax return and later realize you contributed too much, you may need to file an amended tax return using Form 1040-X. You’ll also need to submit Form 5329, which reports the excess contribution and calculates the penalty you owe.

The IRS recommends reporting any earnings related to the excess contribution on your amended return and explaining why you’re making the withdrawal.

So long as you remove the additional contribution and earnings and submit the amended return by the October extension deadline, you can avoid the 6 percent penalty.

Amending your tax return can be a hassle, but there’s a silver lining here: If you later remove the excess, you may be eligible for a refund of any penalties you’ve paid the IRS.

Reasons why you might overfund your IRA

Overfunding an IRA can happen for a variety of reasons and they’re usually unintentional. Here are some examples.

• Forgetting about contribution limits: This can easily happen if you have automated contributions set up. You might assume that because you’ve set up automatic transfers to your IRA, someone — like your online broker — will halt contributions once you reach the annual limit, but that’s not the case. Some brokers will display an IRA contribution tracker to display how close you are to the limit, but unless you adjust your contributions, you can still cross the line. And keep in mind, IRA contribution limits are much lower than 401(k) contribution limits ($7,000 vs $23,000 in 2024).
• Contributing to multiple IRAs: The $7,000 contribution limit ($8,000 if you’re 50 or older) applies to all your IRAs combined. In other words, you can’t contribute $7,000 to a Roth IRA and an additional $7,000 to a traditional IRA. The limit is $7,000 whether you have one or 10 IRAs. Tracking contributions across your various accounts will be up to you.
• Exceeding Roth IRA income limits: Roth IRA eligibility is based on your modified adjusted gross income (MAGI), and if you exceed this limit during the year, it’s possible to contribute to a Roth IRA when you weren’t eligible. In 2024, the Roth IRA limits were $146,000 to $161,000 for individuals and heads of household, and $230,000 to $240,000 for married couples filing jointly.
• You decided to file as married filing separately: For a Roth IRA, the “married filing separately” tax status can lead to an overfunded account. Roth IRA contribution limits are based on income, and the phase-out range is much lower for married couples filing separately than those filing jointly. In 2024 and 2025, if you’re married filing separately, lived with your spouse at anytime and your income exceeds $10,000, you won’t be eligible to contribute to a Roth IRA at all.

Bottom line

Overfunding your IRA can lead to penalties, but it’s fixable. To prevent issues in the future, regularly review your IRA contributions and verify your eligibility, especially if you experience a jump in income. By acting quickly, you can avoid or minimize penalties and keep your retirement savings on track.