Excess IRA Contribution: 6% Tax, Form 5329, Fix Deadlines

First question: which year’s excess are you fixing?

Everything on this page turns on the tax year the contribution was made for, not the day you notice the problem. Publication 590-A says Roth contributions for a year can be made “by the due date of your return for that year (not including extensions)”, so a contribution made in February 2026 may belong to 2025. The two years that matter today are 2025 and 2026.

Source: Publication 590-A (2025), “Excess Contributions Withdrawn by Due Date of Return” and “Recharacterizations”; 26 CFR 301.9100-2(b); 26 U.S.C. 4973(a). The dates for 2026 are our arithmetic from the same rules.

Publication 590-A states the six-month rule for recharacterizations in so many words: “For returns due April 15, 2026, this period ends on” October 15, 2026, and the same publication says that if you timely filed without withdrawing a contribution you can still have it returned “within 6 months of the due date of your 2025 tax return, excluding extensions”. Regulation 301.9100-2(b) is the source of the six months: it grants “an automatic extension of 6 months from the due date of a return excluding extensions”, but only if you “timely filed” the return for the year and take corrective action inside the window. You must also file an amended return with “Filed pursuant to section 301.9100-2” at the top, according to the Form 5329 instructions.

One more date sits inside the next 60 days. The tax is figured on what is in the account “as of the close of the taxable year”, so a 2025 excess that is still there on December 31, 2026 is taxed again for 2026. We come back to that in the section on a missed deadline.

What counts as an excess

For a Roth IRA, section 4973(f) defines the excess as what you contributed for the year over the amount allowed under section 408A(c)(2) and (c)(3), plus last year’s excess, reduced by distributions for the year and by any unused room. The room is the IRA limit less your contributions to all IRAs, cut by the income phase-out.

Source: IRS Notice 2025-67, which states for 2026 that the ranges are “increased from between $236,000 and $246,000” (joint) and “increased from between $150,000 and $165,000” (single), and the 2025 Form 5329 instructions for line 10 and line 19.

A traditional IRA works differently, and the difference matters for readers above the Roth range. Section 4973(b) measures the traditional excess against the section 219 amount “computed without regard to section 219(g)”, so the income phase-out of the deduction does not create an excess: a nondeductible traditional IRA contribution of up to the limit is not an excess. Only the Roth limit is cut by income. That is why a high earner’s Roth contribution can be an excess while the same dollars in a traditional IRA would not be (our reading of the two definitions).

Where does the income problem come from for the investors this site writes for? Often from income that arrives after the contribution: a property sale in the autumn, rental income or Schedule K-1 income that reaches the return months later. Our guide to the Roth IRA contribution limits and phase-out shows how a gain moves modified AGI through the range, and our guides to K-1 versus 1099-DIV and 1099-DIV due dates show when the income paperwork shows up.

The four ways out, and what each one costs

Source: 26 U.S.C. 408(d)(4), 408A(d)(6), 4973(f); 26 CFR 1.408A-5; Publication 590-A (2025); Publication 590-B (2025). Where we interpret the combination, the cell says “our reading”.

Section 408(d)(4) has three conditions: the distribution is received “on or before the day prescribed by law (including extensions of time) for filing” the return for the year, “no deduction is allowed under section 219 with respect to such contribution”, and the distribution is “accompanied by the amount of net income attributable to such contribution”. For Roth contributions the second condition is met by definition, because section 408A(c)(1) allows no deduction. Section 4973(f) closes the loop: a contribution distributed this way “shall be treated as an amount not contributed”.

Recharacterization has its own statute. Section 408A(d)(6)(A) says that a trustee-to-trustee transfer on or before the due date moves a contribution to another IRA so that it is “treated as having been made to the transferee plan”, but only if the transfer “is accompanied by any net income allocable to such contribution”. Regulation 1.408A-5 says the recharacterization can be made only if the transfer is made “on or before the due date (including extensions)”, and it cannot be used for SEP or SIMPLE IRA employer contributions. Since the 2017 law, “a qualified rollover contribution” (a conversion) cannot be recharacterized at all. The result for an over-income Roth contributor is a nondeductible traditional IRA contribution that has to be tracked on Form 8606: see our guide to Form 8606 line by line and the backdoor Roth pro-rata rule, because a later conversion of that money is taxed on a fraction that depends on every other traditional IRA you own on December 31.

The one route that has no cost in tax dollars today, applying the excess to a later year, is narrower for a Roth than for a traditional IRA. Section 4973(f)(2)(B) takes off the prior-year excess only “the excess (if any) of the maximum amount allowable as a contribution under sections 408A(c)(2) and (c)(3)” over what you contributed, and that maximum is cut by income. If your income is above the range again next year there is no Roth room to absorb anything (our reading). For a traditional IRA the test ignores the income phase-out, as noted above.

Net income attributable: the formula and three worked examples

The amount you take out is the excess plus its “net income attributable”. Regulation 1.408-11 defines it in one line: the net income is found “by allocating to the contribution a pro rata portion of the earnings on the assets in the IRA during the period the IRA held the contribution”. Publication 590-A writes the formula out as Worksheet 1-4:

1. The contribution to be returned.
2. The fair market value of the IRA immediately before the removal, plus any distributions, transfers and recharacterizations made while the contribution was in the IRA (the adjusted closing balance).
3. The fair market value of the IRA immediately before the contribution was made, plus the contribution and any other contributions or transfers (the adjusted opening balance).
4. Line 2 minus line 3.
5. Line 4 divided by line 3, “rounded to at least three places”.
6. Line 1 times line 5: the net income attributable.
7. Line 1 plus line 6: the total to be distributed.

The regulation adds rules that matter in practice. The computation period runs from immediately before the contribution to immediately before the removal. If you made several regular contributions, the last one is deemed to be the one returned. If you own several IRAs, the calculation is made “only on the IRA containing the contribution being returned”, and that IRA must pay it out. If the IRA was opened with only this contribution and nothing else went in or out, distributing the entire balance satisfies the rule. The Publication adds: “In most cases, the net income you must transfer will be determined by your IRA trustee or custodian.” So the worked examples below are for checking the custodian’s figure, not replacing it.

Source: Publication 590-A (2025), Worksheet 1-4 and its example; 26 CFR 1.408-11(d) example 2; examples 1 to 3 are our arithmetic with assumed balances, not figures from any account.

Example 1 in full. A joint filer under 50 has 2026 modified AGI of $249,000. The ratio is ($249,000 less $242,000) divided by $10,000, or 0.700; $7,500 times 0.700 is $5,250; $7,500 less $5,250 is $2,250, so the Roth limit is $2,250 (Worksheet 2-2 with the 2026 amounts, our arithmetic). The person put in $7,500, so $5,250 is excess. The Roth IRA held $60,000 before the contribution, so the adjusted opening balance is $67,500; at removal it is worth $72,900. The net income on the $5,250 is $5,250 times ($72,900 less $67,500) divided by $67,500, or $420, and the custodian pays out $5,670. The $420 is income for 2026 (the year of the contribution), the $5,250 is not income, and the 6% tax that would have been $315 a year is avoided.

Example 2 shows a loss. With the account at $64,125 the ratio is negative 0.05, the net income is negative $375 and the amount removed is $7,125. Publication 590-A says so directly: “If there was a loss, the net income you must withdraw may be a negative amount.”

Example 3 shows what readers with a fund in the account miss. The account was $100,000, of which $90,000 was non-traded fund shares and $10,000 cash. A new $7,500 contribution stayed in cash. If the fund’s price rose 1.5%, the account gained $1,350 and the pro rata rule assigns the contribution $7,500 times $1,350 divided by $107,500, or $94.19, although the $7,500 earned nothing. If the ratio were rounded to three places, as the worksheet allows (0.013), the answer would be $97.50 (our arithmetic). The reason for the rule is in the regulation: the net income is a share of the earnings on “the assets in the IRA”, not on the cash.

When the IRA holds assets that are not priced every day, such as a non-traded REIT, BDC or interval fund, the regulation gives one rule: the fair market value at the beginning of the computation period “is deemed to be the most recent, regularly determined, fair market value of the asset”, as of a date on or before the first day of the period. It says nothing more about the closing value, so we read the closing value as whatever value the custodian reports at the removal date (our reading). None of the sources we read says whether the corrective distribution may be made in kind or must be in cash; the custodian’s own terms decide. For how custodians report these values see our guide to Form 5498 and IRA fair market value.

What is taxed on the way out

The earnings are taxable. The Form 5329 instructions say it plainly: “Any related IRA earnings withdrawn with excess IRA contributions are taxable.” They are reported for the year the contribution was made, not the year of the withdrawal (Publication 590-A), so a 2026 excess removed in March 2027 puts the earnings on the 2026 return. If you already filed it, the amended return with the 301.9100-2 legend carries them.

The 10% tax was the old trap for someone under 59 and a half. SECURE 2.0 section 333 added clause (ix) to section 72(t)(2)(A), an exception for amounts “attributable to withdrawal of net income attributable to a contribution which is distributed pursuant to section 408(d)(4)”. Publication 590-B puts the date plainly: “Beginning with distributions made on December 29, 2022, and after” the 10% additional tax “will not apply to a corrective IRA” distribution made on or before the return due date, including extensions. On Form 5329 the earnings go on line 1 and come off again on line 2 with exception number 21.

The custodian reports the removal on Form 1099-R. Publication 590-B lists code 8 for “Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2025” and code P for the same “taxable in 2024 or a previous year”, and Publication 590-A adds that for an excess made in an earlier year “the form will indicate the year in which the earnings are taxable”. A recharacterization is coded N or R. Our guide to Form 1099-R box 7 codes and Form 5329 lists all of them.

If you missed the deadline

A missed deadline does not make the money disappear, and it does not make the tax permanent either. In order:

• Report 6% for each year-end the excess stayed. Form 5329 Part IV line 25 (Roth) and Part III line 17 (traditional) take “6% (0.06) of the smaller of” the total excess “or the value of” the IRAs on December 31. The amount goes to Schedule 2 (Form 1040), line 8. The instructions say a person who owes for earlier years files a Form 5329 for each of them, and give an example in which “You must file Form 5329 for 2023 and 2024”.
• Stop the next year’s tax. For a Roth, a distribution for the year takes the carried excess down dollar for dollar (section 4973(f)(2)(A); Form 5329 lines 20 to 22), and unused Roth room does the same (section 4973(f)(2)(B)). For a traditional IRA the carried excess is reduced only by distributions included in income or distributions covered by section 408(d)(5), and by unused room (section 4973(b)(2)). Publication 590-A says that deducting an excess in a later year “doesn’t, however, let you avoid the 6% tax on any excess contributions remaining at the end of a tax year”.
• Know that a late traditional withdrawal can be tax-free. Section 408(d)(5) lets you take out an excess after the due date without including the excess in income if the year’s total contributions did not exceed the limit and no deduction was taken, and Publication 590-A says the withdrawal “can take place at any time, even after the due date”. The earnings are still outside the 408(d)(4) route.
• Do not expect the file to be closed in three years. SECURE 2.0 section 313 added section 6501(l)(4), which treats the income tax return as the return for the section 4973 tax and, where the income tax return is the return, substitutes “a 6-year period in lieu of the 3-year period” for assessment. We read this as six years from the return, not three, for an excess that was never reported.

Worked case (our arithmetic): a joint filer with 2025 modified AGI of $270,000 put $7,000 into a Roth IRA for 2025. The 2025 limit was zero ($246,000 was the top of the range), so the whole $7,000 is excess and the 2025 tax is $7,000 times 6%, or $420. It was not removed by October 15, 2026, so on December 31, 2026 the carried excess is $7,000 again unless something reduces it. Withdrawing the $7,000 before the end of 2026 brings Form 5329 line 22 for 2026 to zero, and the second $420 is not owed; leaving it costs $840 over the two year-ends. A custodian’s distribution of the whole Roth balance is a special case: the instructions tell you not to enter less on line 20 than line 18, with an example of $1,000 contributed, $800 withdrawn and $1,000 entered.

What SECURE 2.0 changed, and what it did not

The amendment notes in the Code point to two sections of the 2022 law (Pub. L. 117-328, division T) that touch this subject. Section 333 is the exception to the 10% tax described above. Section 313 is the assessment period. We did not find a section of the law that changes recharacterization of a contribution. The bar on recharacterizing conversions comes from the 2017 tax law (Pub. L. 115-97, section 13611(a)), and Publication 590-A repeats it: “No recharacterizations of conversions made in 2018 or later.” For the conversion side of the story see our guide to Roth conversions with illiquid IRA assets.

What a reader can do with this

• Find out which year the excess belongs to. Look at the contribution boxes of Form 5498 and your custodian’s contribution-year designation, then at your modified AGI for that year. A 2025 excess is past the removal date; a 2026 excess is not.
• Compute your own reduced limit before you act. Use the 2026 ranges above and Worksheet 2-2; our Roth IRA limits guide has the tables. If the income is still moving (a sale in the fourth quarter, a K-1 not yet received), wait for the number before deciding.
• Ask the custodian for its excess-contribution form and for its net income figure. The Publication says the trustee usually computes it, so compare it with Worksheet 1-4 and keep both.
• Choose between withdrawing and recharacterizing with your preparer before the deadline: one pays the earnings out and taxes them for the contribution year, the other moves them to a traditional IRA and creates nondeductible basis for Form 8606.
• If 2025 is already past, deal with December 31, 2026. The second year’s tax is the one still avoidable, and the Form 5329 for 2025 still has to be filed.
• Keep the paper. The contribution date, the year designation, the balance before and after, the 1099-R and the amended-return copy all go in the file.

FAQ

Sources, read and saved on October 31, 2026: IRS Publication 590-A (2025), Contributions to Individual Retirement Arrangements, chapters 1 and 2 and Worksheets 1-3, 1-4 and 2-2; IRS Publication 590-B (2025), Distributions from Individual Retirement Arrangements; Instructions for Form 5329 (2025) and Form 5329 (2025); IRS Notice 2025-67 (2026 amounts relating to retirement plans and IRAs); Rev. Proc. 2025-32 (searched; no Roth IRA figure); 26 U.S.C. 72, 408, 408A, 4973 and 6501 (Cornell Legal Information Institute, with the amendment notes for Pub. L. 117-328 sections 313 and 333); 26 CFR 1.408-11, 1.408A-5 and 301.9100-2 (eCFR). Worked examples are our arithmetic with assumed balances. This is analysis of public documents, not investment, legal or tax advice.