You Missed the October 15 Deadline to Correct an Excess IRA Contribution – Now What?

Wednesday, October 16, 2024

By Sarah Brenner, JD
Director of Retirement Education

October 15, 2024 has come and gone. This was the deadline for correcting 2023 excess IRA contributions without penalty. If you missed this opportunity, you may be wondering what your next steps should be. All is not lost! While you may not have avoided the excess contribution penalty for this year, you can still correct the issue for future years.

Excess IRA Contributions

Maybe your income ended up being higher than expected and you were ultimately ineligible for the Roth IRA contribution you made. Maybe you did not have earned income and contributed to an IRA anyway. Excess IRA contributions can happen in all sorts of ways. The cutoff for removing an excess IRA contribution for 2023 without penalty was October 15, 2024.

Two Options for a Fix After the Deadline

Regardless of the reason, if there is an excess IRA contribution it can still be corrected after the deadline. One way to fix the problem is to withdraw the contribution from the IRA. The good news is that only the excess contribution amount needs to be withdrawn. When correcting an excess before the October 15 deadline, any net income attributable (NIA) must also be withdrawn. However, in an odd tax code anomaly, since we are after the deadline, the NIA to the excess contribution can remain in the traditional or Roth IRA.

The bad news is that there will be a 6% excess contribution penalty, and IRS Form 5329 will need to be filed to pay it. Fixing the excess contribution is still the smart thing to do because if the excess contribution is not fixed – the 6% penalty will continue to accrue each year until either the excess is corrected, or time runs out under the new SECURE 2.0 statute of limitations (six years).

Besides withdrawal, there is another option to correct excess IRA contributions after the deadline. You can elect to carry forward the excess and apply the overage to future years. To use this method of correction, you must be eligible to make the contribution in the future year(s), and the 6% penalty must be paid each year until the original excess contribution amount is used up or the statute of limitations runs out.

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