@Nikkinmarie wrote:
Thanks so much for your detailed explanation.
I filed a joint return and my spouse has excess contribution too.
He has excess contribution of $6000 for 2020 and $6000 for 2021 Roth IRA.
I instructed my custodian to withdraw $12000 ($6000 for tax year 2020 and tax year 2021). I am still waiting for the custodian’s response. After reading your reply, I know the withdrawal year is 2022, that’s why I still need to pay 6% for the excess contribution for tax year 2020 on 2021 return.
But another questions is as far as I know, his Roth has a loss and the account balance is around $11000.
For his case, the maximum withdrew in 2022 is $11000 due to investment loss. What should I do his excess contribution then since this is a negative account balance. I still owe the difference of $1000 ($12000-$11000) for the excess contribution.
Thanks so much for your help answering my questions.
Once again, you are confusing 2020 and 2021. The only thing you can remove from your spouse's account using the "removal of excess contributions" is the amount for 2021 ($6000) which must be removed by October 17, 2022. The other $6000 from 2020 can't be a "removal of excess contribution" because you are past the deadline.
You should cancel the request to withdraw $12,000 and resubmit a requests to withdraw the $6000 excess contribution from 2021 only.
For 2020, you again need to file an amended return for your spouse to report the $6000 excess and pay the penalty. And again, this can be done with a stand alone form 5329 in your spouses name. Or, file an amended joint return that reports both excess contributions (it will have 2 different form 5329s, one in each spouses name.)
For 2021, if you complete the removal of excess $6000 from the 2021 contribution, your spouse will still have a $6000 excess on their form 5329 from 2020, even though the account balance will be less than $6000. The amended joint return needs to be filed by mail with the notation I indicated.
For 2022, you can clear the remaining excess by not making any new contributions to any traditional or Roth IRA, and allowing the $6000 excess from 2020 to be treated as your spouse's 2022 contribution.
