ROTH IRA EXCESS CONTRIBUTIONS

[klala70]

In 2021, I made excess contributions $4k to a Roth IRA. Due to higher than expected income, I was not eligible to make any Roth contributions. I left the money in the Roth until discovering the error in April 2023. I paid the 6% excise tax on my 2021 tax return. Since I withdrew the excess contribution amount prior to 2022 tax deadline (4/9/23) , I believe that I do not owe the 6% for 2022. (Not sure)

The earnings on the IRA are still in the account.  If I withdraw them prior to 4/18/23 tax deadline, am I liable for the 10% excise tax plus my standard income tax? If so,

am I allowed to leave the earnings sitting in the Roth account?

[DanaB27]

No, you will have to pay the 6% penalty on your 2022 tax return because the excess wasn't removed by December 31, 2022. You only have an extended deadline for the first year but you missed the extended due date of the 2021 tax return therefore you will have to pay the 6% penalty on your 2021 and 2022 tax returns.

Yes, you will request a regular distribution (without earnings or losses) for the excess contribution ($4,000). You will get a 2023 Form 1099-R with code J (if you are 59 1/2 or older then code T or Q).

You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. Next year on your 2023 tax return you will enter the 2023 Form 1099-R and this will remove the excess contribution:

1. Click "Wages & Income" (under Federal) on the left
2. Scroll down and click "Show more" next to "Retirement Plans and Social Security"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Enter all your Form 1099-Rs
5. Click "Continue" on the "Review your 1099-R info" screen
6. Answer all the questions and make sure you enter the net contributions prior to 2023 (the $4,000 excess is included in this amount) on the "Enter Prior Year Roth IRA Contributions" screen
7. Answer the remaining question.

[klala70]

thank you