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Level 4
posted Oct 23, 2023 7:50:40 PM

Excess contribution to Roth IRA for 2023

Dear Community,

 

Context: Based on our 2022 married filling jointly income we were eligible to contribute upto the max-limit into Roth IRA. So, assuming the same I put in upto the limit money for 2023 as well in my Roth IRA and some contribution in my spouses too. However, later in the year I changed my job and got a higher salary and joining bonus and my gross W2 wages for 2023 will be $230K+ now.

 

Questions:

  1. Can I simply withdraw the money contributed in our 2023 year? Or do I need to add some additional steps in my tax return this year?
  2. Can we both (me and spouse) do backdoor Roth for this year?
  3. If I put some of my income in pre-tax 401K then if there a possibility that I can contribute to Roth IRA this year?

Please feel free to ask any more details if needed.

Thanks,

 

 

0 1 662
1 Replies
Level 15
Oct 24, 2023 4:21:12 AM

  1.  You can't simply withdraw the excess contribution as regular distribution.  To take the contribution back out you would have to request an explicit return of contribution in the amount of the excess.  The Roth IRA custodian will calculate the net income (or loss) attributable to the excess contribution and distribute an adjusted amount.
  2. Yes.  Instead of doing a return of contribution from the Roth IRA you can request that the custodian do a recharacterization of your Roth IRA contribution to be a traditional IRA contribution instead, transferring the adjusted amount as calculated in #1, then convert to Roth.
  3. Elective deferrals to the traditional account in a 401(k) reduce your AGI.  If you can defer enough to the 401(k)  bring your modified AGI for the purpose below $218,000 for 2023, you'll both be eligible to make contributions directly to Roth IRAs.  However, being able to defer a sufficient amount this late in the year depends on how the 401(k) plan allows elective deferrals to be made.

You have until the due date of your 2023 tax return, including extensions, to do a return of contribution or a recharacterization.  However, reporting is much easier if done before the end of 2023 so that the forms reporting either of of these transactions will be 2023 forms instead of 2024 forms.