Over Contributed to Roth IRA for Tax Year 2021

ta_nyc · ‎July 30, 2022

Hello!

I hope someone can help me with this. In February 8, 2022, I made a $6,000 contribution to my Roth IRA account for tax year 2021. I was looking into my retirement accounts and I realized that I may have over contributed to my Roth IRA for tax year 2021 by $460 (I hope I calculated this correctly). My MAGI was $126,150 for tax year 2021. At the time of filing my taxes I did notify my account that I made a $6,000 contribution to my Roth IRA for tax year 2021 so I am not sure why he did not warn me about the over contribution before filing for tax year 2021. That said, what are my options to correct this? I did some research online. I think my best option is to withdrawn the over contribution of $460 before the October 15, 2022 deadline. I will need to withdrawn contributions and earnings before the October 15, 2022 deadline. I did the calculations for earnings. I used the following formula: Net Income = Excess Contribution * ACB -AOB/AOB

AOB = Adjusted Opening Balance

ACB = Adjusted Closing Balance

AOB = Roth IRA balance before $6,000 contribution made on 2/8/2022 + $6,000 contribution. This represents the balance of my Roth IRA account as of 2/7/2022 = $62,000 + $6,000 (contribution made on 2/8/2022) = $68,000

AOC = Roth IRA balance the day I withdraw the excess contributions = $63,000

Net Income = Excess Contribution * ACB -AOB/AOB

-$34 = $460 * (($63,000-$68,000)/$68,000)

If my calculations are correct then earnings are negative so I only need to withdrawn the excess contribution of $460 from my Roth IRA before the 10/15/2022 deadline.

If I withdrawn only the excess contribution, I will not incur any fees or penalties for withdrawing this amount from my Roth IRA. Is this correct?

What are the next steps? Do I need to file an amendment? I think the answer is no since I did not withdrawn any earnings. If yes, when do I need to file an amendment by? What is the deadline? Also, what parts of the amendment need to be completed? What information do I need to completed on the amendment?

I greatly appreciate any and all insights/guidance.

TA_NYC

dmertz · ‎July 30, 2022

You'll request the Roth IRA custodian to make an explicit return of contribution of $460 and the custodian should calculate the adjusted amount to distribute just as you did ($460 - $34 = $426 based on your calculation). There is no tax or penalty on this distribution since there are no taxable gains.

There is nothing to amend on your 2021 tax return with regard to this since there is no taxable gain included in the amount distributed as the return of contribution and you did not qualify for any Retirement Savings Contributions Credit that would otherwise need to be corrected.

ta_nyc · ‎July 30, 2022

Hi dmertz!

Good to hear from you. Thank you so much for your response.

Can you clarify what you mean by the following...

"You'll request the Roth IRA custodian to make an explicit return of contribution of $460 and the custodian should calculate the adjusted amount to distribute just as you did ($460 - $34) = $426 based on your calculation)."

1. I need to explicitly let the Roth IRA custodian know the amount of the overage ($460) and then he/she will deduct from this amount the negative earnings (the custodian will know how to calculate the negative or positive earnings correctly). $460 will not be return to me, but $460 minus the negative earnings (in my case). Am I understanding this correctly?

2. Is the deadline to complete this action 10/15/2022 or 6 months within filing my tax return for 2021?

3. Also, on my 2021 tax return my federal adjusted gross income was $126,150 (this represents $123,037 for wages, salaries, tips, etc. and $3,133 for ordinary dividends). Am I correct in assuming my federal adjusted gross income is the same as MAGI?

Thank you so much,

ta_nyc

dmertz · ‎July 30, 2022

Assuming your calculation, the distribution of $426 will mean $460 of contribution returned.
10/15/2022
In many cases MAGI will be the same as AGI. See Worksheet 2-1 of IRS Pub 590-A for the calculation of MAGI for the purpose of determining the Roth IRA contribution limit: https://www.irs.gov/publications/p590a#en_US_2021_publink100025085

fanfare · ‎March 3, 2023

it's better to have the custodian calculate the earnings since it is a complicated formula.

and you will get the correct 1099-R about it.

Over Contributed to Roth IRA for Tax Year 2021

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