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

[rkad29]

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?

[macuser_22]

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

You can only contribute earned taxable compensation .

[FangxiaL]

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.