@allar wrote:
I am having a similar issue. I was told that I have to remove $3620 out of $6000 contributed when filing my 2019 return. I went to Vanguard triggered the removal and got the money and earnings into my bank account. Vanguard told me I wont get the 1099-R until next year 2021.
Now I go in and create the 1099-R information manually. When I get to the section where the excess contribution is recalculated I am told that I need to remove another 80$ since my income has gone up from adding the distribution amount.
So now should I go into Vanguard and start another removal of the 80$, and then repeat the process of reporting another 1099-R amount? This is a bit crazy because I suspect the next round of recalculation after reporting this 1099-R will indicate I am still over the limit by a few dollars.
Anyone have any insights they could offer on how I deal with this? I am tempted to withdraw more dollars from Vanguard to break the cycle, but hoping there is a better solution.
You have discovered the problem of an excess contribution while you are in the "phase-out" range. Each return will increase your AGI which in turn makes more excess. When in the phase out range you need to remove more than the first calculated amount to account for that.
You can, if you want, just pay the 6% penalty ($4.80) on the $80 excess and remove it as a normal distribution before the end of the year, that will not be taxed because it is your own contribution. By paying the 6% penalty then any earnings on the $80 can stay in the IRA - only the $80 need be removed.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
