Ask your financial Institution for the withdrawal of excess contribution, plus earnings by the return due date. The earnings are included in the taxable income for the year the excess contribution was made.
Choosing this option will increase your MAGI again, and you might have to withdraw some extra excess contribution so you’re not caught in a loop.
If you withdrew an excess contribution plus earnings in 2021 before the due date, then you will get a 2021 1099-R in 2022 with Codes P and J.
If you haven't filed your 2020 return yet, you can report it now and ignore the 1099-R you receive later (unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding.) Then you must enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 Code P will not do anything within the 2021 tax return but the withholding will be applied to 2021.
If you have already filed your 2020 return, you can wait until you receive the 2021 1099-R in 2022 and amend your 2020 return.
To learn how to create a 1099-R in your 2020 return please follow the steps below go here.
You can leave the excess contribution in the Roth IRA and apply it to next year’s contribution. But you’ll have to pay the 6% excess contribution penalty for 2020. Next year, when you file your 2021 return you will be able to apply the excess contribution as a 2021 contribution during the interview.
After you file you can request a regular distribution to remove the excess contribution (without earnings) between October 15 and December 31, 2021. You’ll have the 6% excess contribution penalty on the 2020 return, but you can keep the earnings in the Roth account.
Review the amounts you can contribute based on your filing status, year, and Modified Adjusted Gross Income, here:
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