Thanks again for your response, and I have another follow up if you don't mind another discussion. I'd already reviewed the minimal instructions for Roth IRA excess contributions, but this time went to the section you mentioned on traditional IRA's. That section (albeit the part about withdrawal by the filing due date) refers to a loss: "If there was a loss, the net income you must withdraw may be a negative amount." Does that apply to withdrawals after the filing deadline? Neither the traditional IRA or Roth IRA section with contributions withdrawn after any filing deadlines address how to handle a loss. However, if there are earnings, the instructions indicate to amend the return and report in the original contribution year. Your guidance about distributing the full amount does resolve the problem on the 5329 penalty situation, but is it the IRS' intent to tax earnings but ignore the implication of a loss? Could be. Imagine a case where a Roth IRA started with a $1,000 balance, a contribution was made for $6,500 (an excess of $1,000, which is later withdrawn). If that $7,500 account dropped in value to $5,000, must you still withdraw the $1,000 excess rather than prorate the account balance? That instruction section also said, "In most cases, the net income you must withdraw will be determined by your IRA trustee or custodian." The IRA custodian made the calculation and distributed less than the excess contribution, so they must think (right or wrong) that the contribution return must be prorated to reflect the loss. I'm trying to be on solid ground before trying to contact the custodian about how to handle this, since they will likely defend their calculation. Many thanks again! No one else responded because this is tricky situation!
