As I read and digest this, it seems it may be better to do the carry over and pay the 6 % penalty instead of remove the excess. The reasons are:
The Roth account where the excess contribution was made have gone up. With excess contribution of $7K, almost 60% << (ACB-AOB)/AOB >> of it is Net Income ~= $4200. I will be paying over 25% in federal and state income tax on it.
I can carry over the whole $7K excess to next year Roth IRA contribution ( I qualify for the $7K limit next week with no issue). If so, I pay 6%, $420 penalty this year with Form 5320 this year. There is no distribution this year or next year of any form. I got to keep all current balance in the Roth IRA account and there is no Net Income to report.
Unless I miss something, the carryover as remedy seems to be a simpler and tax benefit solution.
