6% penalty on over-contribution to IRA

Is this penalty ‘once off’ or is it every year … because if its just ‘once off’ it might be worth your while …
All the best,

Damien

Hey there @Damien!

Unfortunately, the excess contribution penalty is perpetual and is assessed every year until the excess is distributed. This language is directly from the IRS:

Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA.

I know what you’re thinking - if the over-contribution resulted in significant (tax-sheltered) returns, it could absolutely be worth the penalty. However, the IRS is very aware of this, and therefore institutes the perpetual rule. Now, if the investor could consistently make 20%+ annual returns, it might be worth the ongoing penalty…

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