☰
✕
Sign In

Why sign in to the Community?

  • Submit a question
  • Check your notifications
Sign in to the Community or Sign in to TurboTax and start working on your taxes
Level 3
posted Apr 17, 2022 1:36:34 PM

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?

0 2 886
2 Replies
Level 15
Apr 17, 2022 1:54:47 PM

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

 

You can only contribute earned taxable compensation .

Expert Alumni
Apr 17, 2022 1:58:52 PM

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.