@Clidinho wrote:
My son contributed the max $6.0k to his Roth in 2020, he now learned that his income is too high for the contribution. Such contribution has earned ~$3.0k in earnings. Schwab said he needs to withdraw both the $6.0 and the earnings. Our question is about the earnings, can he roll that over into a Rollover IRA and avoid paying tax and possible 10% penalty? Or is he better off, paying the tax+penalty and keeping the cash? Big thanks to all for your input.
Rollover no. He can either have the contribution returned to him as a "return of contribution plus earnings" or he can have it recharactorized to a Traditional IRA contribution. Both the contribution and earnings will be moved to the Traditional IRA as if the Roth contribution never happened and the contribution was to the Traditional IRA instead. Either one must be done by the IRA custodian.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
