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What happens if I overfund a Roth IRA with tax free settlement funds?

I am limited by my small amount of earned income to less than the $7000 max contribution, however these funds I'd contribute to the Roth IRA are tax free anyway.  Would there be some IRS penalty for the amount overfunded?
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2 Replies

What happens if I overfund a Roth IRA with tax free settlement funds?

Yes.  6% of the excess that repeats every year until the excess is removed.

 

You can only contribute earned taxable compensation .

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
FangxiaL
Expert Alumni

What happens if I overfund a Roth IRA with tax free settlement funds?

You can only contribute up to the lesser of your earned income or $7000 if you are at least 50 years of age. 6% excise tax applies to excess contributions.

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