She’ll Put $8,000 Into a Roth and Then Find Out Her Income Was Too High. Pull It Back Out With the Earnings Before the Tax Deadline and the Penalty Never Starts

She’s working through her 2026 taxes, and the numbers don’t add up. A year-end bonus pushed her income past the Roth IRA limit, so the $8,000 she put into her Roth in the spring is now an excess contribution. It can be fixed. If she withdraws the excess Roth IRA contribution, including any earnings, before the tax deadline, the penalty never starts. It’s important to understand the three ways to fix the mistake, what each costs, and the deadline she must meet.

One Bonus Can Wipe Out Her Roth Eligibility

For 2026, the IRA contribution limit is $7,500 ($8,600 for individuals age 50 or older). Income caps come on top of that. Modified AGI is your adjusted gross income with a few items added back. Single filers lose eligibility at a modified AGI of $153,000 and can’t contribute at $168,000 or more. For joint filers, the range runs from $242,000 to $252,000. Inside the range, only part of a contribution is allowed. Above it, none is allowed. Any amount that isn’t allowed counts as an excess.

A Penalty That Comes Back Every Year

Federal law charges an excise tax of 6% on excess contributions, measured at the close of each tax year (26 U.S.C. § 4973(a)). The IRS says it applies the tax each year the excess stays in the account. The tax is capped at 6% of the account’s value.

Three Fixes the IRS Spells Out

The law provides a way out. Under 26 U.S.C. § 4973(f), a Roth contribution returned under section 408(d)(4) is “treated as an amount not contributed.” Section 408(d)(4) requires the money to come out by the return’s due date, including extensions, along with the earnings on it (26 U.S.C. § 408(d)(4)).

Pull It Out With the Earnings

She takes out the full amount plus whatever it made. The contribution comes back tax-free. The earnings count as taxable income for the year she made the contribution. She’s under 59½, but that’s fine: beginning December 29, 2022, the 10% early-withdrawal tax no longer applies to those earnings if she withdraws them by the due date, including extensions.

Move It to a Traditional IRA

She can also recharacterize, meaning she can have 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 gone into the traditional IRA from the start (26 U.S.C. § 408A(d)(6)). If she can’t deduct it, it is after-tax money, which makes it a candidate for a backdoor Roth (a later conversion to a Roth). That conversion runs into the pro-rata rule. The law treats all individual retirement plans as one contract, so if she has any pre-tax IRA money, part of the conversion will be taxed.

Roll It Into Next Year

If her 2027 contributions come in under that year’s maximum, she can apply the excess contribution to 2027. She still owes the 6% for 2026, though, because the money sat there as an excess. This fix also uses up her 2027 room, and it only works if she’s eligible to contribute in 2027.

What Each Fix Costs Her

Here are the assumptions. She’s 52 and single, and the entire $8,000 is an excess. It made $600 before she fixed it. She’s in the 24% bracket, which for 2026 covers single incomes over $105,700.

Use the Right Words With Your Custodian

Call the brokerage and ask for a “return of excess contribution” (or a “recharacterization” if you’re moving the money). The paperwork has a name, and saying it gets the request directed correctly. In most cases, the IRS says the trustee or custodian determines the net income that has to come out with the contribution. A Form 1099-R follows and shows which year the earnings are taxable in.

Miss the Date and Form 5329 Comes Into Play

Once the deadline passes, the 6% tax applies and gets figured on Form 5329. There’s one short grace period. If she filed on time without fixing the excess, she can still return it within 6 months of the due date, excluding extensions. She’d then file an amended return marked “Filed pursuant to section 301.9100-2.”

Circle This Date

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

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