She Put $8,000 Into a Roth, Then Learned Her Income Was Too High. Withdraw It Before the Tax Deadline and the Penalty Never Starts

She is sorting through her 2026 taxes and the figures do not line up. A year-end bonus pushed her income above the Roth IRA limit, so the $8,000 she contributed in the spring is now an excess contribution. The mistake can be corrected. If she withdraws the excess Roth IRA contribution, including any earnings, before the tax deadline, the penalty never begins. Here is a look at the three ways to fix the error, what each one costs, and the deadline she has to meet.

Quick Read

• A year-end bonus that lifts income above $168,000 eliminates Roth eligibility entirely, making a 2026 contribution an excess subject to a 6% annual penalty.

• Taking out the $8,000 excess plus its $600 in earnings before April 15, 2027, costs only about $144 in taxes and avoids any penalty.

• Leaving the excess in place for three years adds up to $1,440 in excise taxes and still does not resolve the issue.

One Bonus Can Erase Roth Eligibility

For 2026, the IRA contribution limit is $7,500, or $8,600 for people age 50 and older. Income limits apply on top of that cap. Modified AGI is adjusted gross income with certain items added back. Single filers phase out at a modified AGI of $153,000 and cannot contribute at $168,000 or more. For married couples filing jointly, the phaseout range is $242,000 to $252,000. Within the range, only part of the contribution is allowed. Above it, none is allowed. Any amount not allowed is treated as an excess contribution.

A Penalty That Repeats Each Year

Federal law imposes a 6% excise tax on excess contributions, calculated at the end of each tax year under 26 U.S.C. § 4973(a). The IRS applies that tax each year the excess remains in the account, up to 6% of the account’s value.

Three Fixes the IRS Describes

The tax code provides an escape route. Under 26 U.S.C. § 4973(f), a Roth contribution returned under section 408(d)(4) is treated as though it was never contributed. Section 408(d)(4) requires the money to be removed by the return due date, including extensions, together with the earnings it generated (26 U.S.C. § 408(d)(4)).

Withdraw the Contribution and the Earnings

She can remove the entire contribution plus whatever it earned. The contribution comes back tax-free. The earnings are taxable in the year she made the contribution. She is under 59½, but that does not matter: starting December 29, 2022, the 10% early-withdrawal tax no longer applies to those earnings if they are withdrawn by the due date, including extensions.

Recharacterize It to a Traditional IRA

She can also recharacterize the contribution, which means having the custodian move the contribution and its earnings into a traditional IRA by the same deadline. The IRS then treats the money as if it had originally been placed in the traditional IRA (26 U.S.C. § 408A(d)(6)). If she cannot deduct the contribution, it becomes after-tax money and may be useful for a backdoor Roth conversion later. That conversion, however, runs into the pro-rata rule. Because the law treats all individual retirement plans as one contract, any pre-tax IRA money she has can make part of the conversion taxable.

Carry It Forward to the Next Year

If her 2027 contributions stay below that year’s limit, she can apply the excess to 2027. Even so, she still owes the 6% excise tax for 2026 because the money remained in the account as an excess contribution. This approach also uses up her 2027 contribution room and only works if she is eligible to contribute in 2027.

What Each Fix Would Cost

Assume she is 52, single, and the full $8,000 is excess. The contribution earned $600 before she corrected it. She is in the 24% tax bracket, which for 2026 applies to single filers with income above $105,700.

Use the Correct Terms With the Custodian

Call the brokerage and request a “return of excess contribution” or, if the money is being moved, a “recharacterization.” The paperwork has a specific name, and using it helps direct the request properly. In most cases, the IRS says the trustee or custodian determines the net income that must be removed with the contribution. A Form 1099-R then follows and shows which year the earnings are taxable in.

Missing the Deadline Brings Form 5329

After the deadline passes, the 6% tax applies and is calculated on Form 5329. There is one brief grace period. If she filed on time but did not fix the excess, she can still return it within 6 months of the due date, not counting extensions. She would then file an amended return marked “Filed pursuant to section 301.9100-2.”

Mark the Deadline

Calendar-year returns are due on the 15th day of April after the close of the tax year. For a 2026 contribution, the due date is April 15, 2027. If she files for an extension, she gets until the extended due date. Custodians need time to calculate earnings and process the paperwork, so she should submit the request well before the deadline.

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