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What happens if I contribute more than the allowed IRA limit?

If you contribute more than the IRS annual limit to your IRA, the excess amount is considered an excess contribution.The IRS applies a 6% excise tax penalty each year on the excess amount for as long as it remains in the account.

For example:
If the annual contribution limit is $7,500 and you contribute $8,500, the $1,000 excess contribution may be subject to the 6% penalty.

How to correct an excess contribution

To avoid ongoing penalties, the excess amount generally must be corrected before the tax filing deadline (including extensions). Common correction methods include:

• Withdrawing the excess contribution and any earnings associated with it

• Applying the excess amount toward a future year's contribution, if eligible

If earnings were generated on the excess contribution before withdrawal, those earnings may be taxable and potentially subject to an early withdrawal penalty.