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How to Undo a Roth Contribution

If you end the year earning more than the Roth IRA income limits, you have a couple of options to avoid the 6% penalty on excess contributions.

I funded my Roth IRA with the full $5,500 contribution in January. I ended up getting a new job in the middle of the year, and now it looks like I'll end up earning more than the Roth IRA limits. What can I do to avoid having to pay a penalty for my Roth contribution?

See Also: 6 Savvy Moves to Stretch Your Retirement Savings

If you end up earning too much to contribute to a Roth for 2015, there are two ways to avoid the 6% penalty on excess contributions. You can withdraw your contributions (and any earnings on those contributions) and include the earnings as income for 2015. Or you can ask your IRA administrator to switch your contributions (plus all the earnings on that money) into a traditional IRA. You have until October 17, 2016, to make either move, but it will be easier if you make the change before you file your 2015 taxes.

If you're close to the cutoff, first see if you can make any moves to reduce your income enough to qualify for the Roth. You can contribute the full $5,500 to a Roth IRA in 2015 if your modified adjusted gross income is less than $116,000 if single or $183,000 for joint filers. You can make a partial contribution to a Roth if your income is less than $131,000, or $193,000 for joint filers. "Modified adjusted gross income" in this context includes your adjusted gross income plus certain deductions you need to add back in (such as deductions for interest on student loans or tuition and fees). See Worksheet 2-1 in IRS Publication 590-A, Contributions to Individual Retirement Arrangements, for the full calculation.


You can reduce your taxable income by making pretax contributions to a 401(k), 403(b), 457 or the federal government's Thrift Savings Plan before the end of the year. You can also reduce your taxable income by making health savings account contributions if you have an HSA-eligible high-deductible health insurance policy in 2015. You can contribute up to $3,350 to an HSA if you have single coverage or $6,650 if you have family coverage, plus $1,000 if you're 55 or older. See FAQs About Health Savings Accounts for more information. If you have any self-employment income, you can make tax-deductible contributions to a solo 401(k) or a simplified employee pension. See 7 Year-End Tax Moves for 2015 for more information about steps you can take to reduce your taxable income.

Recheck your household income if you were married in 2015. If your income was below the cutoff when you were single, make sure you still qualify as a married couple. And remember, if you get married anytime before midnight on December 31, the IRS considers you to be married for the full year.

See Also: Are You Saving Enough for Retirement?

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