Excess Roth IRA contribution withdrawl

[ketan_chanana]

Hi,

I made contributions to Roth IRA in April 2023 and January 2024 for the tax year 2023. However, later I found out that I was not eligible for contribution based on my income and now I have to withdraw entire contributions for 2023 year. My question is to calculate Net income attributable (NIA) for excess contribution, should I include all contributions including the one that was made in January 2024 since it was for tax year 2023? OR I just use only April 2023 contributions to calculate NIA and pay taxes on that for 2023 and remaining January 2024 contribution and NIA to be taxed in tax year 2024? If there is any other better/easy way to deal with this, please suggest. Thank you

[DanaB27]

Generally the financial institution should calculate the earnings for you when you request the withdrawal of the excess contribution plus earnings since the calculations can get complicated. Did you check with them?

Calculating the earnings on an excess contribution:

Contribution x (Adjusted Closing Balance -Adjusted Opening Balance)/ Adjusted Opening Balance

(26 CFR § 1.408-11)

Generally, financial institutions will use this rule:

• If you made the excess Roth IRA contribution in 2024 for 2023 and then withdrew in 2024 then you will have code 8 and J on your 2024 Form 1099-R, and it will have to be reported on your 2024 tax return.
• If you made the excess Roth IRA contribution in 2023 for 2023 and then withdrew in 2024 then you will have code P and J on your 2024 Form 1099-R, and it will have to be reported on your 2023 tax return.