The 6% IRA Penalty That Hits Every Year Until You Fix an Excess Contribution

If you have overcontributed to an individual retirement account (IRA), you should fix it as soon as possible.

That’s because the 6% penalty the IRS charges for overcontributions applies every year as long as it remains uncorrected. Any issue with automatic contributions, an income change or any other misunderstanding can lead to an overcontribution. Here’s what to know and how to correct your overcontribution.

What counts as an excess IRA contribution

The IRS announces annual contribution limits each year. For 2026, you can contribute up to $7,500 per year to an IRA, but there is an additional $1,100 catch-up contribution for anyone who is 50 years or older. The limit applies to all of your IRAs combined, so opening more IRAs does not increase how much you can contribute. Your total IRA contributions for the year cannot exceed your taxable compensation.

A Roth IRA contribution may count as excessive if your modified adjusted gross income rose during the year and suddenly made you ineligible for that type of plan.

How the recurring 6% tax works

If you contribute more than you’re allowed to an IRA, there's an excise tax that is similar to the 10% penalty people incur for withdrawing from an IRA before turning 59 ½ years old (though with different tax rates). This tax is either 6% of the unresolved excess contribution or the IRA’s value at the end of the year, depending on which is smaller. It’s possible for the IRA’s value to be less than the unresolved excess contribution if investments perform poorly.

The tax is reported on Form 5329 and carried to Schedule 2 of Form 1040. If you made a $1,000 excess contribution, you will pay $60 in taxes each year until the issue is resolved on your end. Excess contributions are not automatically resolved.

That penalty tax is a fixed 6%, which means regardless of how your portfolio performs, you will only pay $60 per year, assuming you made a $1,000 excess contribution. The only exception is if your IRA’s value drops below $1,000. Then, you will pay less than $60 in taxes due to the overcontribution.

How to correct the mistake

You can ask your IRA custodian for a “return of excess contribution” before the tax return deadline. In some cases, a Roth IRA contribution can be recharacterized as a traditional IRA contribution, but it’s worth checking with your custodian in the event your income rose considerably after making Roth IRA contributions. If you withdraw the excess amount and its earnings ahead of the deadline, you can avoid the 6% tax.

In the event you missed the deadline, you may want to withdraw the excess or apply it against unused contribution capacity in a later year. That way, you can avoid the 6% penalty fee in future years. You may still have to file Form 5329 and submit an amended return for an earlier year to ensure the 6% penalty fee never occurs again. It’s a good idea to consult with your IRA custodian and a qualified tax professional, especially when the overcontribution has been lingering for multiple years.