I have an standard IRA through work and an additional Roth IRA. I split my contributions between the two accounts. I understand the max contributions to the accounts combined is 5,500 per year. A low risk "safe" investment option in my Roth IRA is giving back ~ 4%. The return on my savings account is barely 1%.

I currently have extra money (outside of emergency fund) I would like to invest in something with low risk and fairly liquid in case of a extreme emergency. Is it possible and does it make any sense to add more than the maximum to my Roth and then withdraw that amount prior to filing that years' taxes? Say, if I added a total of $20,000 to the Roth. Are there better ways to make use of this money, given I have no outstanding debt?

  • For what purpose? You'll owe tax and penalty on the excess deposit. Jul 23, 2014 at 1:44
  • For the purpose of having a low risk 4% investment in an account that I'm already familiar with. Would I have a tax penalty if I removed the funds prior to filing that years taxes? Would there still be a penalty associated with the return amount and would that negate any positive?
    – Jacob
    Jul 23, 2014 at 1:48
  • IRA is just a label on the account; it's not an investment. Whatever investment you would do in the IRA, why not just do the same investment outside of the IRA? What is the difference?
    – user102008
    Jul 23, 2014 at 2:49
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    You have a standard IRA through work and an additional Roth IRA. Are you sure that it a standard IRA? Could it be a 401K? Jul 23, 2014 at 12:06

1 Answer 1


Excise tax on the excess contribution is 6% a year on the amount of the contribution. In addition, gains will be taxable to you. By adding 20K over the limit, you added $1200 to your tax bill. Withdraw it ASAP.

Whatever investment you have in your IRA - you can probably buy it (or a comparable) outside of the IRA.

  • 1
    If the excess contribution (plus earnings from it) is withdrawn by the tax filing deadline, there is no penalty. irs.gov/publications/p590/…
    – user102008
    Jul 23, 2014 at 2:52
  • Is it still better to just keep this investment outside of the IRA altogether. Are there any guaranteed investments out there >= 4%?
    – Jacob
    Jul 23, 2014 at 3:07
  • @Jacob the same investments. What do you have in the IRA that you cannot get by opening an account with the same broker outside of IRA? Even when withdrawing before the tax deadline (which will eliminate the 6% franchise tax) you're still going to pay taxes on the earnings so having it in IRA has no benefit to you. Just more paperwork and no chance of capital gains rates.
    – littleadv
    Jul 23, 2014 at 3:13
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    @jacob you weren't aware because there's no such thing.
    – littleadv
    Jul 23, 2014 at 3:24
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    low-risk != guaranteed. This seems to be an annuity, I'm not sure if you can deposit and withdraw in it as you want. Annuities are usually limited in withdrawals (i.e.: not liquid).
    – littleadv
    Jul 23, 2014 at 3:34

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