You won’t be breaking the law if you contribute too much into a Roth IRA, but you will be breaking IRS rules. The IRS doesn’t like that and will charge you a tax penalty on excess contributions. Fortunately, the IRS also makes it possible to correct a mistake before you get hit with the penalty.
Roth Contribution Limits
As long as you or your spouse earns some money, you can contribute to a Roth IRA. Your contribution can’t be more than your earnings and is currently capped at $5,000 per year or $6,000 if you are 50 or older. The IRS also sets an upper income limit for adding money to a Roth. As your adjusted gross income gets close to the limit, your allowed contribution is gradually reduced until it reaches zero. The AGI limits for 2012 were $183,000 if you were married and filed a joint return. For single taxpayers the limit was $125,000 but only $10,000 if you were married and filed a separate return
You can have any number of traditional and Roth IRA accounts. For example, you might have accounts with your bank, your broker and a mutual fund. However, your contribution limits apply to all of your IRA accounts put together, not to each one separately. To see if you might have contributed too much, add up the contributions you have made to all of your traditional and Roth IRA accounts.
The IRS charges a 6 percent excise tax on excess contributions to a Roth IRA. The tax is assessed every year the excess money remains in your Roth account. If you roll over funds into a Roth from another account, don’t worry. Rollover funds are not contributions and won’t affect your contribution limits, no matter how much money is involved.
Removing Excess Contributions
It’s not hard to correct your mistake if you contribute too much to a Roth IRA. Contact your IRA trustee and take the excess money out. Take out any money the excess contributions have earned as well. As long as you do this by your tax filing deadline, including extensions, you won’t owe any penalty.