TurboTax calculated that I overcontributed $50 to my Roth IRA in 2023 based on my income of $138,137 (which is just over the $138,000 threshold when the IRA contribution limit starts going down). Per TurboTax, my contribution limit was $6,450, instead of the max $6,500. So I called my Roth IRA administrator and withdrew $56 in March 2024 from my Roth IRA ($50 excess contribution plus $6 earnings). The $6 in earnings is taxable in 2023 as income (reported via a manual 1099-R). The $6 raised my 2023 income to $138,143, which in turn, per TurboTax, further lowered my Roth IRA contribution limit to $6,440 from $6,450. Now TurboTax is saying I overcontributed $10 and will have to pay a 6% penalty of $1.
What would be the best way to handle this situation? I'm concerned that, if I withdraw another $10 from my Roth IRA (plus any earnings), my 2023 income would slightly rise again from the earnings, and then my Roth IRA contribution limit would be lowered again, bringing me back to the same situation.
Is it best to just report the $56 withdrawal on Form 5329 as part of my 2023 return and simultaneously pay the 6% $1 penalty on the $10 excess contribution? Then I could just count the $1 excess contribution as part of my 2024 contribution to my Roth IRA, ending the annual 6% penalty and call it a day?
Thank you.
