What Happens If You Over-Contribute to an IRA or 401(k)?

When it comes to saving for retirement, most of the advice you’ll hear involves maxing out your contributions to tax-advantaged accounts. After all, these accounts—whether we’re talking about a 401(k), 403(b), IRA, HSA or something else—come with some powerful benefits, so it can make sense to take full advantage if you can.

But what happens if you overcontribute to a tax-advantaged account? If you don’t withdraw the overcontribution (and any earnings) before you file taxes for the year, you could be subject to tax penalties.

Below, we look at contribution limits, discuss why over-contributions happen, and share the steps you can take to correct the issue.

401(k) and IRA contribution limits

Because they’re a way to defer paying certain taxes, the government sets limits on the amount people can contribute to tax-advantaged accounts like 401(k)s or IRAs. These limits apply to any contributions, so if you’re adding money to multiple accounts, the contribution limits would apply to any collective contributions to those accounts.

401(k) contribution limits

The IRS periodically updates 401(k) contribution limits to keep pace with the rate of inflation.

For the 2025 tax year, if you’re younger than 50 years old, you can contribute $23,500 to a traditional or designated Roth account 401(k), 403(b), or 457(b) account. If you’re 50 or older, you can contribute an additional $7,500, raising the total contribution to $31,000. The limit increases to $24,500 for the 2026 tax year, with an allowable catch-up contribution of $8,000.

In December 2022, the SECURE 2.0 Act was passed into law, introducing sweeping changes to workplace retirement plans designed to expand coverage, increase savings rates, and ease plan administration. [1, 2, 3] Instead of the catch-up contributions noted above, these individuals can contribute an additional $11,250 for both 2025 and 2026. This raises the total possible contribution limits for these workers to $34,750 in 2025 and $35,750 in 2026.

IRA contribution limits

For Roth and traditional IRAs, the contribution limit was $7,000 for the 2025 tax year, with an additional $1,000 catch-up contribution possible for those 50 or older. The contribution limit and catch-up contribution increases to $7,500 and $1,100, respectively, for the 2026 tax year.

Depending on your income, you may also be subject to additional Roth IRA contribution limits. In 2026, if you’re a single filer or head of household and your modified adjusted gross income (MAGI) was under $153,000 in 2025 ($242,000 if you’re married, filing jointly, or a qualified widow(er)), you can contribute the full amount to your Roth IRA. But if your MAGI was higher than $153,000, your contribution limit is lower.

Once your MAGI reaches $168,000 or higher ($252,000 if you’re married, filing jointly, or a qualified widow(er)), you aren’t able to contribute to a Roth IRA at all.

Though you’re able to contribute to a traditional IRA at any income level, your eligible tax deduction decreases as your income increases and will eventually phase out completely.

How you might exceed the contribution limits

Here are some scenarios that could result in excess contributions:

• You changed jobs in the middle of the year and contributed to two different 401(k) accounts without realizing you went over the limit.
• You have access to two plans, such as a 401(k) and a 403(b), and you went over the collective limit.
• You receive a raise or bonus in the middle of the year, which pushes your total contributions over the limit.
• You're diversifying your retirement savings between a Roth IRA and a traditional IRA and exceed the collective limit.
• You’re self-employed and contributing to a Roth IRA, and you had an unexpectedly strong end of the year, which pushes you above the income limits and makes you ineligible to contribute.
• You max out your 401(k) contributions each year, but then change employers and find yourself automatically enrolled in your new employer’s 401(k) program.

SECURE 2.0 and over-contributions

Some provisions in the SECURE 2.0 Act may inadvertently make it easier to over-contribute to retirement accounts. One such provision requires 401(k) and 403(b) plans to automatically enroll eligible participants’ initial contributions set at 3 percent. These contributions are then increased by a set amount annually until the employee contributes at least 10 percent (but no more than 15 percent) of their salary annually. You can opt out, but you need to do so manually.

Can you withdraw excess 401(k) contributions?

In short, yes. Withdrawing excess contributions as soon as you notice the error can help you avoid paying penalties on the excess contributions.

How are excess retirement contributions taxed?

How quickly you fix the issue can impact how much you end up paying in penalties. With a 401(k), if you notice the error and withdraw the funds (and their earnings) right away, you’ll pay income taxes according to your normal tax bracket on any funds returned to you, as they’re considered income for that year. If you don’t withdraw the excess until after April 15, you could be subject to double taxation—both in the year you over-contributed and the year you removed the excess contributions. You may also have to pay a 10 percent early withdrawal penalty when removing funds.

If you over-contribute to an IRA, you’ll have to pay a 6 percent penalty every year until the excess contribution is corrected. If you notice the error and withdraw your excess contributions (and earnings) before Tax Day, you’ll just be subject to paying income tax on the distributions (the excess funds you take back out).

What to do when you over-contribute to your 401(k) or IRA

The good news if you’ve over-contributed to your retirement account is that you have a couple of options to limit your penalties and correct the issue.

1. Request a corrective distribution

To limit your penalties, you’ll need a corrective distribution that equals the over-contribution as well as any earnings or profit on that excess contribution. This payment must be made to you by Tax Day to avoid any penalties.

If the account in question is an employer-based account—like a traditional or designated Roth account 401(k)—all you need to do is notify your plan’s administrator and ask them to make the corrective adjustment. Because this process can take some time—especially during the busy tax season—the sooner you notify them, the better off you’ll be.

If the account is a traditional (and not a Roth) qualified retirement account, the distribution will effectively raise your taxable income for the year. To account for this, your employer should provide you with an amended W-2, which you will then use when filing your taxes. This should be provided to you automatically, but if it isn’t, you should request one.

If the account in question is an IRA, you should simply be able to withdraw the excess contribution.

If your excess contributions earned any income, that income must be reflected in your tax bill for the year. To that end, your plan’s administrator will automatically provide you with a Form 1099-R at the end of the tax year. If you don’t receive this form, contact your administrator.

2. Apply the excess contributions for the next year

The easiest solution may be to apply an excess IRA contribution to the next tax year. However, it’s important to realize that you will most likely be on the hook for the 6 percent penalty.

3. Recharacterize your Roth IRA contributions

Recharacterization is the process of moving contributions that you’ve made to a Roth IRA over to a traditional IRA. It can be effective if you:

1. find that you’ve over-contributed to your Roth IRA due to exceeding the MAGI limits, and
2. are still eligible to contribute to a traditional IRA.

To do this, you’ll essentially need to withdraw the over-contributed assets from the Roth account and move them into a traditional IRA. You’ll also need to recharacterize any earnings or losses on those assets. This can get complicated, so working with a tax professional can help remove some of the confusion around the process.

Recharacterization needs to occur by your tax deadline to avoid the tax penalty.

Over-contributions are not a bad problem to have

While it might be a hassle, over-contributing to your retirement accounts can be a good sign for your finances because It means that you’re taking the idea of saving for retirement seriously. Now you just have to decide how to use those excess funds. Will you pay down debt, save for a down payment on a house, or meet another money goal? If you’re having difficulty deciding, connecting with your Northwestern Mutual financial advisor, who can help you master your money and stay on track with your financial goals. They’ll ask questions about what matters to you and help you build a comprehensive financial plan custom-tailored to you and your goals. An advisor can also help you plan from year to year, making adjustments to your plan as needed and helping you make sure you’re contributing to all your savings goals in the most productive ways.

This publication is not intended as legal or tax advice. Financial representatives do not render tax advice. Consult with a tax professional for tax advice that is specific to your situation.