What is the penalty tax percentage on the excess amount for individuals who contribute more to their IRA than allowed each year?

What is the penalty tax percentage on the excess amount for individuals who contribute more to their IRA than allowed each year?

• A. 6%
• B. 5%
• C. 10%
• D. 0%

Answer: (A)

When you contribute more to an IRA than the annual limit, the IRS charges a 6% excise tax on the excess amount for each year the excess stays in the account. This penalty applies specifically to the excess contribution, not to distributions. If you remove the excess (and any earnings on it) by the tax-filing deadline for the following year, you can avoid the 6% tax; otherwise it accrues annually. The other options (5%, 10%, or 0%) don’t reflect the actual IRS rule.

When you contribute more to an IRA than the annual limit, the IRS charges a 6% excise tax on the excess amount for each year the excess stays in the account. This penalty applies specifically to the excess contribution, not to distributions. If you remove the excess (and any earnings on it) by the tax-filing deadline for the following year, you can avoid the 6% tax; otherwise it accrues annually. The other options (5%, 10%, or 0%) don’t reflect the actual IRS rule.