I over contributed 11,995 to my IRA for 2019 and 2020 in July of 2020 after having contributed to the ROTH limit -- I didn't know the 7000 dollar limit was across both the Standard IRA and the Roth -- dummy me
To make things more interesting, I did a Roth Conversion which was basically the 11955 with some growth.
The good news is I bought stocks in Tsla, and it grew 5x, so I'd rather pay the excise tax each year, and roll half of the 11,995 for 2022, and the next half for 2023.
In any case I have a questions for you all:
1. Is the 6% excise tax on the contribution only or the entire Roth account?
2. If I decide to take out the excess contribution, I found I need to take the excess contribution itself plus the growth. Using the equation below, I have come up with 31,263.00 distribution. Is the equation correct?
Adjusted Opening Balance: The previous IRA balance plus all contributions (including the excess one), consolidations, and transfers into the account since the contribution occurred.
Adjusted Closing Balance: The current value of the IRA minus all distributions, consolidations, and transfers since the contribution occurred.
Net income = excess contribution × (ACB−AOB)/ AOB
31263.25 = 11955.00 * (168130.00 - (34553.00 + 11955.00)) / (34,553.00 + 11,955)
Adjusted Closing Balance (ACB): 168,130.00
Initial Balance: 34,553.00
Excess: 11,955.00
Adjusted Opening Balance (AOB): 34,553.00 + 11,955.00
Taxable amount: 19,308.25 = 31263.25 - 11,955.00
3. Is the taxable amount correct -- meaning the removal of the contribution from the total removed from the Roth IRA account?
4. If so, my taxes would be 19,308.25 * .24 = 4633.97, or is there also a 10% penalty? if so then 6564.80 in Taxes!!!
So pay 6% * 11,955.00 = 717.30 for 2021 and 2022, and 6% * 4955 = 297.30 for 2023 for a total of 1731.90 and keep the TSLA gains, or pay 4633.97 to 6564.80 in taxes and loose all the gains.
5. Do I pay taxes on the Roth conversion and the excise tax or distribution tax (depending which route I go with)? Even if I go with the removal of excess? since basically the Roth conversion is the excess?
6. To me paying the excise tax seems like a better solution. I'm I missing something?
