Back in January 2021, my spouse was unemployed and our joint income for 2021 was (expected to be) less than $198,000. Thanks to that, I contributed $6,000 to my own Roth IRA and $6,000 to the Spousal Roth IRA (i.e the maximum I was allowed to).

Recently she found a job and, as a consequence of that, our joint income at the end of 2021 will be more than $198,000. We will likely exceed $208,000 this year, which means that we shouldn't be entitled to any Roth IRA contribution.

What to do now? Should I sell all my positions and withdraw $6,000 (+ profits) from each account? Will I have to pay penalties and taxes on those withdrawals?

Is there a way to fix this mistake (which I believe is a common mistake, given that it's hard to predict how much a couple will earn at the end of the year) with minimal or no losses?

I tried looking at pages like https://www.irs.gov/retirement-plans/correcting-plan-errors, but I couldn't find anything specific to Roth IRA or my situation.

  • 3
    Are you sure the contribution in January 2021 was for the 2021 tax year? Or was it still for the 2020 tax year because the deadline for a 2020 contribution was April 2021? Commented Oct 22, 2021 at 10:53
  • @mhoran_psprep great point, though, I'm fairly certain it always defaults to the current year unless you purposefully choose the prior year. I'm guessing OP would have known if 2020 was selected, and if so, probably wouldn't have asked the question. Hehe.
    – TTT
    Commented Oct 23, 2021 at 17:21
  • 1
    The specific page you linked is only for employer plans not IRAs, but this page irs.gov/retirement-plans/… under contribution limits links to irs.gov/retirement-plans/plan-participant-employee/… which at the bottom covers excess contributions -- and links to exact publication (590A) in TTT's answer. Commented Oct 24, 2021 at 6:24

1 Answer 1


Congrats, this is an exciting problem to have!

Since you haven't filed yet for 2021, you have two options, one of which is exactly what you guessed:

  1. Withdraw the contributions plus the earnings. As long as you do it before you file your taxes for 2021, there will be no penalties. You will have to pay taxes on any earnings beyond the $12K. Note, you may be able to open a regular taxable brokerage account with your IRA custodian and transfer the positions to that account without selling and re-purchasing.
  2. If you wish to contribute to a Traditional IRA you should be able to "Recharacterize" the contribution(s) as if it were made to the Traditional IRA. Note that if either you or your spouse has a retirement plan at work you won't be able to deduct the contributions. However, the non-deductible (after-tax) IRA can be rolled back into a Roth, so this may be your best course of action based on your original intent. Note the "Backdoor Roth" has some additional caveats that could affect your decision to do this.

Regardless of what you choose, you'll need to contact your IRA custodian to fill out the proper forms. I'd give them a call. They'll also be able to talk through the options for a non-deductible IRA and moving it back into the Roth, if you choose to go that route.

Side note: you mentioned:

We will likely exceed $208,000 this year, which means that we shouldn't be entitled to any Roth IRA contribution.

There is no rush on this. You can do all of this up until you file (before April 15, 2022). You might as well wait until the end of the year or whenever you know for sure that you'll exceed the amount.

For reference, here is the relevant rule from the IRS in Pub 590-A:

Withdrawal of excess contributions. For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made.

Note that if you dig into it, a few paragraphs up from that quote in Pub 590-A, it says "A 6% excise tax applies to any excess contribution to a Roth IRA." That sounds scary by itself, but don't worry, the quoted text takes precedence over that if you withdraw before you file, because all of the funds are "treated as an amount not contributed" and therefore the 6% rule does not apply.

  • 2
    Since the OP and the spouse both have earned income for 2021 (and both numbers greater than $6K), both are eligible to contribute to Traditional IRAs. Whether they can deduct their contributions (as is typically the reason for contributing to a Traditional IRA) is a different matter. They might need to file Form 8606 to keep track of nondeductible contributions to their Traditional IRAs if they go the recharacterize my contribution route. Commented Oct 24, 2021 at 15:28
  • @DilipSarwate Thx! I re-worded to make that clearer. I mentioned backdoor Roth too, which after further thought is probably the best way to go here unless OP already has a lot of funds in pre-tax Traditional IRAs.
    – TTT
    Commented Oct 25, 2021 at 4:40
  • Technically if you file for extension you can do corrective withdrawal or recharacterization until Oct. 15. But that shouldn't be necessary and there's no benefit to delaying. Commented Oct 27, 2021 at 2:09
  • @dave_thompson_085 agreed! There's no reason to purposefully do an extension if you don't need to. But if you do extend, you have until Oct 15 to make the change.
    – TTT
    Commented Oct 27, 2021 at 5:16

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