@Nikkinmarie wrote:
"Then as for the remaining $200 excess in the account, you can deal with this in one of two ways.
1. Take a regular Roth IRA withdrawal of $200 some time in 2022, that will be reported as a 2022 withdrawal on your 2022 tax return. (It is too late to take a corrective withdrawal of this $200 in 2022 and count it retroactive to 2021.) Taking a regular withdrawal will remove it from being considered excess when you file your 2022 return.
2. Or, if you are eligible to make new contributions to a traditional or Roth IRA for 2022, contribute $200 less than your maximum allowed contribution. The $200 excess will be counted as part of your allowed limit for 2022 and will no longer count as excess. "
Yes, I am quite confused of 2020 excess. I thought I can do regular withdrawal of my $200 and my spouse's $6000 now (2022) to remove excess on my 2022 tax return based on option 1. After reading your last post, you are advising option 2.
Yes, you can remove the $200 (your excess from 2020) and the $6000 (spouse's excess from 2020) as a regular 2022 withdrawal. You will get each get a 1099-R for the withdrawal, report it on your tax return, and it will probably be non-taxable as long as the withdrawal represents a withdrawal of original contribution.
I recommend option #2 simply because leaving money inside a tax-preferred retirement account is better for your long-term financial situation. If you are eligible in 2022 to make IRA or Roth IRA contributions (based on your income, filings status, and retirement plan coverage at work, if any) why not leave the money in the account to grow for retirement and consider it as going toward your 2022 contribution limit?
But either option is ok.
