Hello, I read a lot of other posts on this topic, but couldn't find one that matched up nicely with my situation.
I am married filing jointly, but have not filed our 2021 taxes yet. I am running into an issue regarding Roth IRA contributions in excess of the limit for 2021. We are both 35 years old. I contributed $6,000 to my Roth IRA with Merrill Edge for the 2021 year on February 4, 2021. My wife contributed $6,000 to her Roth IRA with Fidelity for the 2021 year on September 24, 2021. I contributed $6,000 to my same Roth IRA with Merrill Edge for the 2022 year on January 21, 2022. We have contributed $0 to traditional IRAs for years 2021 and 2022.
We made a good amount in capital gains (much more than I had anticipated), but unfortunately it put us over the income limit for making any contributions to our Roth IRAs, so each of us is $6,000 over our allowed contribution of $0.
I am reading about the different options regarding how to fix this before filing taxes. My understanding is that the traditional way of doing this would involve removing the excess contribution and any earnings on that contribution, following the formula Net income = Excess contribution x (Adjusted closing balance-Adjusted opening balance)/Adjusted opening balance. Would the Adjusted Opening Balance be the exact balance of the accounts the very day before the contribution was made? Would the Adjusted Closing Balance be the exact balance of the accounts the very day we remove the contribution? Would we have to ask Merrill Edge and Fidelity to provide us with the exact account balances for the Adjusted Opening Balance? Since we're 35 we'd also be charged a 10% early withdrawal penalty, correct?
I also read about other potential ways to fix the situation by recharacterizing the excess contributions and any attributable earnings from the Roth IRAs to traditional IRAs, or by applying the excess contributions to the next year (I already contributed $6,000 to my Roth IRA for the 2022 year, but my wife has not made any contribution yet), or by withdrawing the excess in 2022 (after October 15, but before December 31). I haven't done the calculations using the net income formula above, but I would estimate that the $6,000 contributions have appreciated nicely. Would one of these options be applicable and better to pursue? Thank you
From many of the threads, I noticed that
@dmertz has provided savvy advice. Any thoughts you might be able to offer are much appreciated.
