In 2020 I made an excess non-deductible traditional IRA contribution in the amount of ($2,250), that amount was later converted to a Roth IRA in 2021. My understanding is that this transaction would be considered a failed Roth conversion (aka failed rollover).
My understanding is that failed rollovers are treated as an ordinary distribution from the plan or traditional IRA. For failed Roth rollovers, the distribution part is taxable to the extent of the earnings portion of the distribution. The earnings portion may also be subject to the 10% additional tax on early distributions, unless an exception applies. The contribution part of the failed rollover is subject to the 6% excise tax to the extent it exceeds the statutory limitations on regular contributions to Roth IRAs (i.e., to the extent it is an excess contribution).
I am trying to better understand how to fix this mistake. I understand that I have until 10/15/21 to remove this amount (plus earnings) from the Roth IRA to avoid the 6% penalty. My 2020 tax filing shows an excess contribution to a traditional IRA not a Roth IRA and my understanding is that Roth conversions are filed in the year converted (in this case 2021, not 2020). I am unsure whether I need to amend my 2020 tax filing, what forms to file, and what additional amount I owe (as I did not pay taxes on the distribution amount or the 10% additional tax on early distributions). I'm also unsure how to get my brokerage (Vanguard) to make the right earnings calculation and show a "ordinary distribution."
Please help!
Thank you!
