Return of excess IRA contributions

Have you contributed to your Traditional or Roth IRA and found out you're not eligible or unable to take a deduction? Returning your contribution can save you money―and headaches―on your taxes. We're here to help.

Reasons for excess IRA contributions 

The most common reasons for excess IRA contributions are:

  • Your income was too high or too low to make a contribution for the year
  • You contributed more than the annual IRA contribution limit 
  • You rolled over money from a former employer plan that was not eligible to go into an IRA
  • You made a contribution to a traditional IRA and you're ineligible to take a deduction

Whatever your reason, we’ll help you correct it. Let’s break down your options and help you find the right choice for your situation.

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Option 1: Withdraw my excess amount

The amount you need to withdraw from your IRA to correct the error―and the way the IRS treats it―depends on whether you withdraw the excess before the tax deadline (a timely correction) or after the tax deadline (untimely correction). Here’s how each works:

  • Timely correction: Before the tax deadline (plus extensions)

    When you make a timely correction, any earnings or losses in your IRA need to be factored into the withdrawal and reported to the IRS. Fidelity will do the math for you.

    You have until the tax-filing deadline to complete a timely return of excess. If you file an IRS extension, you have until the extended tax-filing deadline, normally October 15th.

    2 important facts to understand:

    • If your account INCREASED in value after your excess contribution, the amount you need to withdraw may actually be higher than the amount you contributed, based on your earnings.
    • If your account DECREASED in value after your excess contribution, the amount you withdraw may be less than your original contribution amount.

    View earnings calculation

    Tax reporting of a timely correction
    Timely corrections must be reported in the year of the withdrawal on IRS Form 1099-R. Any earnings will be included as taxable income in the year you made the excess or non-deductible contribution. For more on reporting, see the instructions for IRS Form 1040, 5329, and 8606.

  • Untimely correction: After the tax deadline (plus extensions)

    With untimely corrections, the IRS does not require an earnings calculation. However, untimely corrections are subject to a 6% excise tax each year the contribution remains in the account.

    2 important facts to understand:

    • If your income was too high or too low to contribute, the amount you withdraw, if less than the annual contribution limit, is not taxable.
    • If you exceeded the annual contribution limit, the amount you withdraw could be taxable in the year of the withdrawal.

    Tax reporting of untimely corrections
    Untimely corrections must be reported on IRS Form 1099-R as an early or normal withdrawal, depending on your age. For more information on reporting, see this instructions for IRS form 1040, 5329, and 8606.

Option 2: Start a recharacterization

Recharacterizing is an option if you haven’t passed the tax-filing deadline (plus extensions) for the year your contribution applied to. When you recharacterize a contribution, you switch it from a Roth IRA contribution to a traditional IRA contribution, or vice versa.

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Option 3: Apply your contribution to a future year

Let’s say you’re ineligible to contribute in a particular year due to higher-than-normal income―but you expect your income to revert to normal the next calendar year. In that case, applying your contribution to a future year might make sense. The excess amount you choose to apply to future years is subject to a 6% penalty.

You can learn more about applying your contribution to future years in IRS Publication 590-A or the Instructions for IRS Form 5329. We suggest working with a tax advisor to make sure this option is right for you.