I am currently looking into 2021 Tax and arranging all the documents. I contributed $6000 (myself) and $6000 (spouse) for Roth IRA contributions. Now I am calculating my income for 2021 Tax and it seems like I will be pushing over 198K. I think my income may come out to be around 204K. I have a side job which also earns income and that has pushed me over the limit. What should I do in this case? I know that I will have to pay a 6% penalty but how do I know about this penalty? I mean how will I know and whom should I pay?

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    Thanks I have updated the question. Yes 2021.
    – Mary Doe
    Commented Dec 24, 2021 at 17:49

2 Answers 2


If you already know that you'll end up above the limits, I suggest you call your custodian ASAP and ask them to re-characterize the contribution to Traditional. Then (assuming you have no other Traditional IRA amounts), immediately convert back to Roth (ideally before 2022 starts, in case BBB passes).

This way you don't end up paying any penalty, and end up with the same Roth IRA you intended.

If you already have Traditional IRA amounts, conversion becomes complicated because of proration rules, but you can just leave it in Traditional then.

Remember that the 6% excess contribution penalty is charged every year until you withdraw it, so you better do recharacterization.

  • Thanks! That is a good advice. I already have a Traditional IRA so I can just re-characterize Roth IRA to Traditional IRA and leave it there. I can take the whole amount $6K for myself and $6K for my spouse and re-characterize it. Will the custodian know how to calculate the gains on that amount because I need to re-characterize the gain also. Also, since my contribution to Roth is post tax what will happen once it goes to Traditional IRA.
    – Mary Doe
    Commented Dec 24, 2021 at 21:39
  • Another question. Do you think I should wait till Feb 2022 when I have all the documents and I will have better idea of my Modified Adjusted Gross Income. Maybe my MAGI will end up being 190K (married filling jointly) which means I am still under the limit of $198K.
    – Mary Doe
    Commented Dec 24, 2021 at 21:44
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    @MaryDoe the custodian should know since it is a legally allowed transaction that they have to be able to support. Once you re-characterize it, it becomes a regular Traditional IRA contribution. Since you're unable to deduct it due to income limits, you'll have after-tax basis in your IRA and you'll use the form 8606 to track it. You can wait till February, sure, as long as you do this before tax due date you should be fine, but the re-characterization should be before that date, leave the custodian some time to process your request (at least a month).
    – littleadv
    Commented Dec 25, 2021 at 0:10
  • Thanks! I will wait till Mid Feb to see how much is my MAGI which should match my AGI. If it is over 198K (married filing jointly) then I will take steps for re-characterzing it.
    – Mary Doe
    Commented Dec 25, 2021 at 0:20
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    @MaryDoe on the opposite, it's designed to avoid taxes and penalties in the exact scenario you're in.
    – littleadv
    Commented Dec 25, 2021 at 21:53

When you file your federal income tax return for the year, if you have an IRA penalty for that year, you must fill out Form 5329, and the penalty is added to the total taxes for the year on your federal income tax return (Form 1040). As with income taxes, you are supposed to have withheld or have paid estimated taxes through the year to reach approximately the level you needed to have paid, and when you file your tax return, any excess you have paid will be refunded, and any deficit you will owe (and if you owe too much there can be an underpayment penalty). A penalty will increase the tax you will owe, and therefore decrease your refund or increase the amount you will owe.

Now, assuming you made the contributions in 2021, and it is before the 2021 tax return filing deadline (April 15, 2022) right now, there are still two ways to avoid an excess contribution penalty:

  • You can withdraw the excess contribution (plus earnings attributed to that contribution) before the tax filing deadline, and it won't count as an excess contribution. You will have to pay tax on the earnings. I am not sure if there will be an early withdrawal penalty on the earnings.
  • You can recharacterize the Roth IRA contribution into a Traditional IRA contribution before the tax filing deadline. The IRA custodian will transfer the contribution, plus earnings attributed to the contribution, into Traditional IRA. It will be treated as if you guys contributed to Traditional IRA to start with. Since Traditional IRA does not have a contribution income limit, there will not be an excess contribution penalty. (There is an income limit for deducting the contribution if either of you contributed to a 401k, however. But if that's the case, it just means you have a non-deductible Traditional IRA contribution.) You may then, if you choose, convert that money into Roth IRA, paying tax on the earnings, effectively executing a belated "backdoor Roth IRA contribution". Roth IRA conversion also has no income limit, though pending legislation may affect wealthy people's ability to do this in future years. But only do the conversion if you have no pre-tax money in Traditional/SIMPLE/SEP IRAs, or the pro-rata rule will get you.
  • Thank you so much for the detailed answer. You said "If you have IRA penalty for that year". So that is where I am confused. How would I know that I have IRA penalty? Will I receive a letter of will the T Row Price tell me that you have penalty? How does that work.
    – Mary Doe
    Commented Dec 24, 2021 at 18:07
  • @MaryDoe: Read Publication 590-A for the rules on contribution limits, and the tax on excess contributions.
    – user102008
    Commented Dec 24, 2021 at 18:10
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    @MaryDoe T Row Price, will not know about any penalty. They don't know how much you make, and they don't see all your investments. Commented Dec 24, 2021 at 18:16
  • Thanks! I still confused as how will I know that I have made excess contribution to the IRA. Is it when I file tax and I see my MAGI to be over 198K (married filling jointly). If that is the case, I should call T Row Price and withdraw or transfer excess contribution to Traditional IRA account. How how will I know how much in excess or should I just move all $6K for me and $6K for my spouse to a traditional IRA.
    – Mary Doe
    Commented Dec 24, 2021 at 18:55
  • If the OP has other (pre-tax) money in her Traditional IRA, it is not possible to do "a back-door Roth IRA contribution" of just the nondeductible contribution into the Traditional IRA. All money coming out of a Traditional IRA is prorated between the pretax part (deductible contributions plus all earnings) and the basis (the nondeductible contributions, if any. Also, all Traditional IRA accounts (regardless of who the custodian is) are considered as one IRA by the IRS, and so, starting a separate Traditional IRA account with just the nondeductible contribution does not help. Commented Dec 24, 2021 at 19:52

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