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What To Do When You Over-Contribute to an IRA

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IRA Contribution Limit for the 2024 and 2025 Tax Years

The IRA contribution limit is the maximum amount an individual can contribute to all IRAs in their name—including both Traditional and Roth IRAs—during a given tax year.

For the 2025 tax year, the IRA contribution limit is the lesser of:

  • $7,000 (or $8,000 if age 50 or older), or
  • Your taxable compensation for the year.

For the 2024 tax year, the IRA contribution limit was:

  • $6,500 (or $7,500 if age 50 or older), or
  • Your taxable compensation for the year.

These limits apply to total IRA contributions, not per account. Contribution limits are reviewed annually and may increase, decrease, or remain the same in future years.

What if you contributed more than the IRA contribution limit?

IRA providers, like Betterment, typically have safeguards to help prevent over-contributing. However, over-contributions can still happen—especially if you have multiple IRAs at different financial institutions.

For example, if you contributed to an IRA with another provider early in the year and later opened an IRA with Betterment, you might unintentionally exceed the IRA contribution limit. Fortunately, there are ways to correct an over-contribution, which we’ll explore below.

Methods to Correct Excess Contributions

There are four main methods for correcting an excess contribution. The first two can be done prior to the tax filing deadline, and latter two can only be completed after the tax deadline has passed.

1. Remove excess contributions prior to the tax filing deadline.

If you remove an excess IRA contribution before the tax filing deadline, you will not owe taxes on the contribution itself. However:

  • You will owe ordinary income tax on any earnings from the excess contribution.
  • If you are under age 59½, a 10% early distribution penalty applies to the earnings.
  • If you remove the contribution after filing your taxes but before the deadline, you may need to amend your tax return.

Steps to Remove Excess Contributions Before the Tax Filing Deadline:

  1. Log in to your Betterment account on a web browser.
  2. Navigate to: Transfers > Withdraw.
  3. Select your IRA. (Ensure you are choosing the correct account type.)
  4. Mark the withdrawal as: “Removal of Excess Contribution” for the relevant tax year.
  5. Follow the on-screen instructions to complete the withdrawal.

⚠ Important:

  • The system will automatically calculate the earnings on the excess contribution that must also be withdrawn.
  • Once removed, you cannot re-contribute the excess amount for the same tax year.
  • The IRS requires Betterment to report all IRA contributions, including those removed as excess.

2. Recharacterize your IRA contribution.

Recharacterizing an IRA contribution is the process of transferring the excess contribution from a Roth IRA to a Traditional IRA or vice-versa, depending on your situation. The caveat here is that you cannot recharacterize more than the allowable maximum contribution. When you recharacterize, the contribution is deemed to have happened in the same tax year as the original contribution. You will still need to calculate the net gain or loss associated with the amount being recharacterized, and this amount will need to be recharacterized as well. Generally, there is no tax associated with a recharacterization.

How to Recharacterize a Roth IRA to a Traditional IRA

Most Roth to Traditional IRA recharacterizations can be done automatically in your Betterment account. Follow these steps:

  1. Log in on a web browser (not the mobile app) to access the recharacterization feature.

  2. Ensure you have a Traditional IRA. If you don’t have one, open a new account by selecting: Open New Account > IRA.

  3. Once your Traditional IRA is set up, go to: Transfers > New Transfer > Other ways to transfer > IRA Recharacterization.

  4. Need help? If you cannot complete the recharacterization automatically, contact support@betterment.com for assistance.


3. Remove excess contributions after the tax filing deadline.

If you remove an excess IRA contribution after the tax filing deadline, a 6% excise tax applies for each year the excess remains in your account. Unlike pre-deadline corrections, you do not need to calculate earnings—only the excess contribution itself is removed.

Steps to Remove Excess Contributions from Prior Years:

  1. Log in to your Betterment account on a web browser.
  2. Navigate to: Transfers > Withdraw.
  3. Select your IRA. (Ensure you are choosing the correct account type.)
  4. Choose one of the following withdrawal options from the dropdown:
    1. Early distribution (if you’re under age 59½, may incur a penalty)
    2. Normal distribution (if you’re over age 59½ and eligible for penalty-free withdrawals)
  5. Follow the on-screen instructions to complete the withdrawal.

⚠ Important:

  • A 6% excise tax applies each year the excess contribution remains in your account.
  • You may need to amend past tax returns if the excess was reported in prior years.

4. Carry forward your contribution.

You can offset the excess contribution by reducing your contribution for the ensuing tax year, assuming you qualify to make a contribution in that year. You can calculate how much to reduce the ensuing years contribution by taking the maximum less the excess amount. With this method, there will not be any type of distribution from the IRA. Even though there is not a distribution, you will be subject to the 6% excise tax on the excess amount.

Other Interesting Points

  • If you contribute to both a Traditional and Roth IRA, the excess amount would be considered the Roth IRA.
  • If you make contributions throughout the year, the most recent contributions will be considered the excess.

You can learn more of the details on IRA contribution rules straight from the IRS by reading this article.

Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a tax professional.