No matter what the reason, contributing beyond the IRS limit could trigger a tax penalty if you don't take steps to handle the excess.
Retirement
Excess Contribution: Did you over-contribute to your IRA?
Sometimes it happens—you put more into your IRA in one year than the law allows. Fortunately, there are ways to fix it.
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What you can do
There are several ways to correct the mistake, but it's best that you don't wait too long. Here's some help:
If you discover the error before you file your tax return
You can withdraw the excess contributions plus their earnings by your tax-filing deadline—April 15.
- For most types of IRAs, use this form to remove excess contributions
- For SIMPLE IRAs, use this form to remove excess contributions
Did you know?
You have many options to remove an excess contribution from your account. You can:
- Transfer the amount "in kind" to a new or existing (taxable) nonretirement Vanguard Brokerage Account ("VBA").
- Keep your investment in the market by transferring the excess amount to a new or existing nonretirement VBA.
- Open a new VBA—it's fast and easy!
- Move your excess contribution to a taxable account, allowing you to stay in the market. (You don't need to make any trades, and you don't have to meet Vanguard's minimum investment requirement for its proprietary mutual funds.)
Note: If you request to remove your excess contribution through electronic bank transfer (or check), your request may be delayed if funds aren't available in your Vanguard IRA® because the removal may require you to sell shares in one of your positions.
You can withdraw an excess contribution online by completing the appropriate DocuSign form.
If you discover it after you've filed your tax return
You can either:
- Remove the excess within 6 months and file an amended return by October 15—if eligible, the excess plus your earnings can be removed by this date.
- Remove the excess once discovered, even after October 15. You'll need to reduce next year's contributions by the amount of the excess. For example, if your limit is $7,000 and you exceed it by $1,500 in the current year, you can offset the excess by limiting your contributions to $5,500 the following year.
Be aware you'll have to pay a 6% penalty each year for every year the excess amounts stay in the IRA. The tax can’t be more than 6% of the total value of all your IRAs at the end of the tax year. Consult a tax advisor to discuss how this applies to you.
Note: If you contributed to a Roth and traditional IRA in the same tax year and your total contribution went over the allowable IRA amount, IRS regulations require you to remove the excess from the Roth IRA first.
You may want to talk with a tax advisor about the best way to handle any excess contributions.
FAQ
Your options depend on your account type.
When removed from your Vanguard mutual-fund-only account, you can:
- Move your excess contribution to your mutual-fund-only nonretirement account.
- Receive your excess contribution as a check.
Note: We can't send an excess contribution removed from a mutual-fund-only account directly to a bank.
When removed from your Vanguard Brokerage Account, you can:
- Move your excess contribution, in kind, to your Vanguard Brokerage Account nonretirement account to avoid selling your investment holdings.
- Receive your excess contribution as a check or as an electronic bank transfer (EBT). You may have to sell your investment(s) to ensure you have enough money in your Vanguard Federal Money Market settlement fund.**
**Per our written request policy, if you remove your excess contribution through DocuSign and you elect to receive a check or an electronic bank transfer (EBT), we'll remove the excess from your Vanguard Federal Money Market settlement fund.
If the excess contribution didn't happen at Vanguard, you should contact your previous financial institution to obtain an earnings statement that accounts for the time and place of the funds before you transferred them to Vanguard. Alternatively, you can self-calculate the earnings (or losses)—but we recommend you consult a qualified tax advisor about your personal situation.
Once obtained, you'll use the previous account's information to complete the electronic IRA and ESA Excess Contribution Removal Process. In the same section, we'll ask you for the "contribution date", which is the date you contributed to your IRA at the other financial institution.
If your excess contribution is removed by your tax filing deadline, plus extensions, the proportional earnings (gains) or losses are also removed. Vanguard has adopted the method set forth in IRS Notice 2000-39 and Proposed Regulations 1.408-11 to calculate these earnings or losses.
The calculations are based on ALL assets in your IRA plan, not just the fund contributed to. For partial excess removals, the latest contribution(s) are removed first and are used in the calculation.
For additional information and examples, read IRS Publication 590-A, Contribution to IRAs
Maybe your dollar amount was set a little too high. (We still think AIPs are the most convenient and easiest way to help you meet your goals!)
Remember that your annual contribution limit is a single cumulative amount that applies across all your traditional and Roth IRAs and not within each IRA.
You might have used a tax refund, for example, to make an IRA contribution earlier and then contributed again later for the same tax year.
Keep in mind that Roth IRA contributions may be reduced or possibly ruled out, depending on your modified adjusted gross income (MAGI).
Have questions? We're here to help.
Have questions? We're here to help.
You may wish to consult a tax advisor about your situation.
You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.