By Sarah Brenner, JD
Director of Retirement Education
Excess IRA contributions happen frequently and for a variety of reasons. Maybe your income ended up being higher than expected and you were ultimately ineligible for the Roth IRA contribution you made. Maybe you did not have earned income and contributed to an IRA anyway. The deadline for correcting an excess IRA contribution for 2025 without penalty was October 15, 2026. What happens if you missed this deadline?
There are two options for fixing excess 2025 IRA contributions after the October 15 deadline. One option is to withdraw the contribution from the IRA. The good news is that only the excess contribution amount needs to be withdrawn. When correcting an excess before the October 15 deadline, any net income attributable (NIA) must also be withdrawn. However, in an odd tax code anomaly, if the removal is after the deadline, the NIA to the excess contribution can remain in the traditional or Roth IRA.
The bad news is that there will be a 6% annual excess contribution penalty, and IRS Form 5329 will need to be filed to pay it. Fixing the excess contribution is still the smart thing to do because if the excess contribution is not fixed, the 6% penalty will continue to accrue each year until either the excess is corrected, or time runs out under the statute of limitations (six years).
Example 1: Greg, age 41, contributed $7,000 to his traditional IRA for 2025. After October 15, 2026, he realized that he was ineligible because he had no earned income for 2025. Greg has an excess contribution of $7,000 in his traditional IRA. To correct the excess, Greg withdraws the contribution, but not the NIA. Greg will owe the 6% excess contribution penalty for 2025 (but not for 2026 if his withdrawal occurs by December 31, 2026). He will also need to file Form 5329.
Besides withdrawal, there is another option to correct excess IRA contributions after the deadline. You can elect to carry forward the excess and apply the overage to future years. To use this method of correction, you must be eligible to make the contribution in the future year(s), and the 6% penalty must be paid each year until the original excess contribution amount is used up or the statute of limitations runs out. Carrying an excess contribution forward may be a good solution if you will be eligible for a contribution in a future year.
Example 2: Greg (from Example 1) is working in 2026 and has earned income. He may consider carrying forward his 2025 excess contribution instead of withdrawing it. He would claim the $7,000 traditional IRA contribution on his 2026 tax return. He would still have to pay the 6% excess contribution penalty for 2025.
If you have technical questions you would like to have answered, be sure to submit them to [email protected], to be answered on an upcoming Slott Report Mailbag, published every Thursday.