Over-Contributed to Your Roth IRA? The Tax Strategy for Wealth Building That Fixes It Before October 15

You maxed out your Roth IRA in January, felt good about it, and then had a strong year. A promotion, a spouse's raise, a bonus bigger than you planned. Now your income has climbed past the Roth limit, and the contribution you were proud of has quietly turned into something the IRS charges you 6% a year to keep.

This is one of the most common tripwires in tax planning for high income earners, and one of the most fixable. The right tax strategy for wealth building is not to panic, and not to leave the money where it sits. It is to correct the excess contribution the right way, before a deadline closer than most people realize.

What actually counts as an excess contribution?

A Roth IRA contribution is capped at $7,000 for 2025, or $8,000 if you are 50 or older, and your ability to make it phases out as income rises. For 2025 the phase-out runs from $150,000 to $165,000 of modified adjusted gross income for single and head-of-household filers, and from $236,000 to $246,000 for married couples filing jointly. Above the top of your range, you cannot contribute directly at all.

The trap is timing. You often contribute in January but do not know your final income until the year closes, and anything you were not allowed to put in becomes an excess contribution that does not fix itself.

Why does the 6% keep coming back?

‍The penalty for leaving that excess in the account is a 6% excise tax under Section 4973 of the tax code, and it is not a one-time charge. It applies for every year the excess stays put, so leave it three years and you have paid 6% three times. That is what turns a small January mistake into a recurring cost.

‍The deadline is later than you think, even if you already filed

‍ You have until the due date of that year's return, including extensions, to remove the excess and its earnings. For a 2025 contribution, a calendar-year filer generally has until October 15, 2026. Here is the part almost everyone gets wrong: filing your return does not close the window. IRS rules give a taxpayer who filed on time an automatic six-month grace period, so October 15, 2026 is your date whether or not you formally extended. If you filed months ago and only just caught this, you are very likely still in time.

What you actually owe when you fix it

Fixing it costs far less than the 6% you are avoiding. You remove the excess plus its net income attributable, the earnings figure your custodian calculates with the IRS formula. Your original contribution comes back tax-free, since you funded a Roth with money already taxed. Only the earnings are taxable, as ordinary income, in the year you made the contribution, not the year you withdrew. The SECURE 2.0 Act removed the 10% early-withdrawal penalty that used to hit those earnings on a timely correction, so for most people the whole cost is a little income tax on the growth.

A quick example

Here is an illustration with round numbers, not a real client's result. Say you put $7,000 into a Roth IRA early in 2025, and by year-end your income was over the ceiling, so the full $7,000 was excess. While it sat there it grew by $600. You ask the custodian for a return of excess, and they send back $7,600. On your 2025 return, the $7,000 is not taxed again, and the $600 of earnings is taxed as ordinary income for 2025. In a 32% bracket, that is about $192 of tax. The 6% penalty, which would have been $420 for 2025 and again every year the money stayed put, never applies, because you corrected in time.

Where the fix stops, and what to plan instead

A good tax strategy for wealth building names its own limits, so here are two things this correction does not do.

First, it gets you out of the penalty. It does not get you the Roth contribution you wanted. If your income is over the limit, that door is closed for the year, and you need another route into a Roth. For many high earners that is a backdoor Roth, a nondeductible traditional IRA contribution followed by a conversion. It carries its own trap, the pro-rata rule, which counts every traditional, SEP, and SIMPLE IRA balance you hold and can make the conversion partly taxable. We covered that aggregation, and why it surprises people, in our recent post on choosing a retirement plan as a business owner.

Second, this is an IRA problem, not a workplace-plan problem. If you also fund a Roth through your 401(k) at work, leave it alone. The income limits that trip up a Roth IRA do not touch a designated Roth 401(k). The IRS says so in its own comparison of the accounts: no income limitation to participate. High earners can often keep funding the Roth side of a 401(k) even in years a direct Roth IRA is off the table.

‍The tax strategy for wealth building, in one move

‍If you contributed to a Roth IRA for 2025 and your income had a good year, check your modified adjusted gross income against the 2025 phase-out now, while there is room before October 15. If you are over, call your custodian and ask specifically for a return of excess contribution, not an ordinary withdrawal, because the coding drives how it gets reported, then send the confirmation to your CPA. Before assuming you are shut out for 2026, look at the backdoor route and the Roth 401(k) first. For 2026 the phase-out rises to $153,000 to $168,000 for single filers and $242,000 to $252,000 for joint filers, so a few people who were over last year will be back under.

‍We're currently offering our Tax Savings Blueprint, a forward-looking planning service for the 2026 tax year. We review your returns and current-year documents, project where your 2026 return is heading, and walk you through it on a call, so you leave with a clear picture of your tax situation, the strategies available to you, and a set of actions to put in motion. Schedule a free intro call to learn more at dominickconsultingllc.com/contact.

‍This is for general educational purposes and isn't personalized tax advice. Every situation is different, talk with your CPA before acting on any strategy discussed here.