There are many way to avoid this:

1. Make magic (under control of humans/elves/other sapient species) extremely rare and give it only to those which you know will not misuse it.
2. Talk with the roleplayers and set clear and non-breakable rules about magic.
3. Establish one of your characters as being the user of the most powerful magic in the setting as well as rules about magic.
4. Create a setting in which no matter how ridiculously powerful magic one has you have a character or rule which makes it completely useless.
5. Create a setting in which being magically overpowered is only important for your income (AKA a setting not concentrated on fights or even without fights at all).
And on and on...

So there are many ways to prevent or stop roleplayers from being magically overpowered trough to be true none of them guaranties 100% success rate. How prone are people to making overpowered characters and how tightly you have to tie the leash to prevent them from doing that mostly depends on what kind of roleplay and roleplayers are in question.