I have maxed out my Roth IRA contribution this year (2021) not knowing there was a limit due to my income. To put it simply, I only qualify for $5k and I put in $6K. The IRA has now grown to about $8k and therefore I am left with $1333 (excess contribution and its corresponding growth). What is the best option to fix this tax free ?

Should I recharacterize the $1333 to a traditional IRA, and reconvert back to a Roth right away ? Is this possible ? is it tax free ?

Leave it in the account, and suck up the 6% tax on the excess next year 2022 ? (if this is the best option, please explain how to count the excess from 2021 towards 2022)

Thank you. Please provide me with the best tax-free approach to fixing this before the deadline (December 2021 or April 2022 ?)

2 Answers 2


There are several options.

  1. You can take out the contributions (and the earnings attributable to those contributions) before the tax filing deadline for 2021 (i.e. April 15, 2021), and you will not have an excess contribution penalty. You will have to pay tax (and potentially early withdrawal penalty; although I'm not too sure about this penalty as the IRS docs are not very clear about this) on the earnings part of the withdrawal.
  2. You can re-characterize the Roth IRA contribution to a Traditional IRA contribution, which will also transfer all of the attributed earnings. You can then, if you like, convert that money to Roth IRA again. The recharacterization will basically treat you as having made a Traditional IRA contribution originally, in early 2021. Combined with a conversion to Roth, this is basically a "backdoor Roth IRA contribution". As usual with the backdoor, you have to make sure you have no pre-tax money in any Traditional/SIMPLE/SEP IRAs, or the pro-rata rule will make the taxes complicated. Assuming you don't have any pre-tax money in any Traditional/SIMPLE/SEP IRAs, you would only have to pay taxes on the gain between contribution and conversion, in the year of the conversion.
  3. If you choose to leave the money in Roth IRA without doing anything about it, you would not only pay a 6% penalty for this year, but you will continue to pay a 6% penalty every year until either you take the excess contribution (the $1000) out, or the excess is absorbed into a future year's unused contribution allowance.
  • Thank you for the response. So far I believe #1 is the best option. #2 is worrisome: (1) I have pretax contributions in a traditional 401k and (2) the fact that I am not qualified for the deduction on traditional IRA due to my income bracket, it means I will be double taxed on the backdoor conversion! Please let me know if you agree.
    – Georgy
    Nov 20, 2021 at 16:28
  • @Georgy: I think #2 is the best option actually. 401k and IRA are separate. Money in 401k doesn't affect the pre-tax IRA pro-rata rule. The fact that you don't deduct Traditional IRA contributions is perfectly normal and expected in backdoor Roth IRA contributions. You will not be "double-taxed" -- the part of the conversion that comes from after-tax money is not taxed -- that's why you only pay taxes on the earnings in the conversion.
    – user102008
    Nov 20, 2021 at 17:57
  • Thanks for clarifying that 401k contributions have no effect. Let's say I recharacterize the full ROTH IRA contribution + gains from 2021 ($8k) to a traditional IRA and then do a conversion immediately where no new gains (still $8k post backdoor conversion). Will I owe income tax on the $2k ? if so, then the best option is to wait until I am confident of my 2021 AGI and then to a partial recharacterization-then-backdoor conversion so I pay the least amount of tax?
    – Georgy
    Nov 20, 2021 at 19:08
  • @Georgy: I don't think a "partial recharacterization" would work. If you look at Publication 590-A, Worksheet 2-2, which determines your Roth IRA contribution limit, they take the reduced limit based on your income, and then subtract your Traditional IRA contributions. That means your Roth IRA contribution limit will still be $5000 - your Traditional IRA contributions, and you will not be able to contribute $6000 to your IRAs overall unless it is all Traditional IRA contributions.
    – user102008
    Nov 20, 2021 at 23:12
  • Wow this is complicated stuff. In conclusion, the best way is a full recharacterization and then conversion with income tax due on the $2k gain :(. I also do not think a possibility of long term capital gain could be possible on that $2k even if I wait until the October deadline (when the age of the stocks is grater than 1 year). I appreciate your guidance and wish you a happy life :)
    – Georgy
    Nov 21, 2021 at 0:20

Even if you keep track of all your investment income etc, you might not know know till December 31, 2021 or later what your exact income is for 2021. For example, some bond mutual funds will be paying dividends on December 31, and these won't get recorded and be visible on the fund's website till after 2021 ends. Worse, you might get 2021 income from partnerships, trusts etc and you won't know how much this income is until February or March 2022 when you get the Schedule K's from these entities. In short, the $5K that you believe you will be entitled to contribute to your Roth IRA might turn out to be an even smaller amount than you are estimating right now. The easiest thing to do is to withdraw the entire $6K (plus gains on the amount) from your Roth IRA at this time. The Roth money is post-tax money and all that will be happening is that you have investment income of $1333 on which you would have to pay tax. In 2022, after all the dust has settled and you know for sure what your 2021 AGI is (and before Tax Day), you can make the correct amount of Roth contribution for 2021. Be sure to check the correct box when sending in the money because IRA contributions between January 1, 2022 and April 15, 2022 could be 2022 contributions or 2021 contributions; check the correct box!

  • Hi Dilip. What you're suggesting will result in a short-term capital gains tax on $2k. That is worse than the 6% on $333 (the gain on the $1k over-contribution), agree? Let's assume I am confident about the $5k part, what is the best option?
    – Georgy
    Nov 20, 2021 at 0:05
  • Not only that but also the 10% early withdrawal penalty since I am not 59.5 yo and had the ROTH < 5 years! I am pretty sure there is a much better approach.
    – Georgy
    Nov 20, 2021 at 0:19

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