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

rkad29 · ‎April 17, 2022

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 · ‎April 17, 2022

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 · ‎April 17, 2022

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