I accidentally contributed too much to my 2020 IRA this year.
I contributed $7000 to a traditional IRA and $1000 to a Roth IRA. My intent was to contribute $6000 to my traditional IRA but I lost track and contributed too much. The Roth IRA was used in previous years but due to a jump in income in 2019, I wanted to reduce my tax liability as much as possible.
I've since purchased and sold several stocks and am now fully invested in stocks.
What do I need to do to rectify this situation?
I know that I must sell off at least $1000 worth of securities in each account, but how do I know if I owe interest, penalties, etc. and what do I do to withdraw? I assume an excess contribution form?
Any help is appreciated.
You have until the due date of your 2020 tax return (April 15, 2021) to request a "return of excess contribution" (NOT a regular distribution) from your IRA. The IRA custodian must return the $1,000 excess plus any earnings attributed to the excess. They will issue a 1099-R next January for you to report it on your 2020 tax return. Only any earnings returned will be taxable/
The returned amount will be in box 1 on the 1099-R that you will receive ans the taxable earnings will be in box 2a. Just enter the 1099-R into TurboTax and TurboTax will do the rest.