Removing excess contributions from your IRA | Vanguard (2024)

FAQs

How do I remove excess contributions from my IRA? ›

The deadline for a timely correction of an excess contribution is the tax-filing deadline (plus extensions) in the year you made the excess contribution. To be eligible to remove your excess contribution after the tax-filing deadline, you must file your taxes on time or file for an extension to file your return.

Traditional and Roth Excess Contribution Removal Deadline

This is typically April 15 of the following year (or October 15 if you're filing an extension).

*Regardless of your tax withholding election, you may be subject to taxes and penalties when you remove your excess contribution.

Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA. The tax can't be more than 6% of the combined value of all your IRAs as of the end of the tax year.

Contribute make-up amounts, adjusted for earnings through the date of correction. For excess contributions, distribute them or use the retention method. Establish procedures to ensure that employer contributions are equal to the amount provided for in the annual notice and are timely deposited.

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contributions (both traditional and Roth combined) are greater than your allowed amount for the year, and you haven't withdrawn the excess contributions, you'll owe a 6% penalty tax on the excess contribution and you must complete Form 5329 Additional Taxes on Qualified Plans (Including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

You can take distributions from your IRA (including your SEP-IRA or SIMPLE-IRA) at any time. There is no need to show a hardship to take a distribution. However, your distribution will be includible in your taxable income and it may be subject to a 10% additional tax if you're under age 59 1/2.

Once you reach age 59½, you can withdraw funds from your Traditional IRA without restrictions or penalties.

There's no monthly limit, but you have to keep in mind that traditional IRA distributions will always be subject to income tax. You might therefore prefer to take smaller amounts out spread over the course of your retirement years.

When you withdraw the excess amount, you will not be subject to any additional taxes on the donation. You will be obliged to pay additional tax on the sums that are above your contributions cap if you do not withdraw the excess non-concessional contributions from your super account.

What happens if an excess contribution is removed before the excess removal deadline? ›

Timely remove excess before the tax filing deadline

— The excess or unwanted IRA contribution amount, plus the net gain or loss, will need to be removed by the tax filing deadline (generally April 15), including an automatic six month extension. This means the excess should generally be distributed by October 15.

Corrective Distribution of Excess Contributions. Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess can be corrected. The excess is distributed to you by the plan (along with any income earned on the excess).

There are several ways to correct an excess contribution to an IRA: Withdraw the excess contribution and earnings. Generally, you can avoid the 6% penalty if you withdraw the extra contribution and any earnings before your tax deadline. However, you must declare the earnings as income on your taxes.

You can withdraw the money, recharacterize the excess contribution into a traditional IRA, or apply your excess contribution to next year's Roth. You'll face a 6% tax penalty every year until you remedy the situation.

Be aware you'll have to pay a 6% penalty each year for every year the excess amounts stay in the IRA. The tax can't be more than 6% of the total value of all your IRAs at the end of the tax year. Consult a tax advisor to discuss how this applies to you.

You can take distributions from your IRA (including your SEP-IRA or SIMPLE-IRA) at any time. There is no need to show a hardship to take a distribution. However, your distribution will be includible in your taxable income and it may be subject to a 10% additional tax if you're under age 59 1/2.

In a 401(k) plan, corrective distributions happen when the company must return a portion of the contributions made by "highly-compensated employees" (HCEs). Highly-compensated employees are those who own 5% or more of the company, or will have earned more than $155,000 in 2024.

Go to Fidelity.com or call 800-544-5373. Use this form to request a return of an excess employee elective deferral and/or employer contribution made to a SIMPLE IRA. If you are a nonresident alien, please contact Fidelity prior to completing this form, as you may be subject to additional requirements.