dmertz
Level 15
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Retirement tax questions

Correcting this excess contribution requires a regular distribution of exactly $6,000 reported with code J, not a return of contribution before the due date of your 2021 tax return.  Because the distribution is being made after there due date of your 2021 tax return, neither you nor the IRA custodian are to make any adjustment for gain or loss.

 

There is nothing you can do now to avoid the 6%, $360 penalty for 2021 and the 6%, $360 penalty for 2022.  The penalty will be eliminated on your 2023 tax return when the regular distribution of $6,000 appears on line 20 of your 2023 Form 5329.

 

Note that some IRA custodians are ignorant of the proper way to correct an excess contribution after the due date of the tax return, so make sure that they are doing a distribution that will have just code J, not codes J and P.  When making a corrective distribution after the due date of the tax return it's best to not even tell the IRA custodian why you are obtaining the distribution so that they can't mess it up.

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