dmertz
Level 15

Retirement tax questions

If by the due date of your tax return for 2021 you remove the the excess contribution made for 2021, the amount of the excess is irrelevant.  The entire amount can be returned tax free and only the gains are taxable.  The amount of this excess becomes relevant to the tax treatment of the distribution only if you make the corrective distribution after the due date of your tax return.  See the difference between paragraph 408(d)(4) of the tax code (the second part that you quoted which applies in your case if the return of contribution is done timely) and paragraph 408(d)(5) (the first part that you quoted which applies if the distribution of the excess is not done timely).