Excess Roth IRA contribution

[monicaolala]

Hi everyone, 

I'm filing taxes for 2021 and having trouble with Roth IRA. 

In 2021, I contributed $4,500 in Roth IRA with Fidelity. Then in August 2021, I accidentally deposited $6,000 in Roth IRA with Vanguard. (I was confused with a question when opening a Roth IRA account with Vanguard) 

After the money was settled down in the account, I was frustrated and transferred all $6,000 to a Brokerage account in Vanguard. I did not use any recharacterization forms to remove the excess contribution. 

I received a 1099 R form about the distribution of $6,000 from Vanguard. I filed that in my taxes, but what should I enter for the question: Your Excess Roth IRA Contributions for Prior Years. 

Should I enter $0 or $4,500? 

 According to this information https://investor.vanguard.com/investor-resources-education/iras/excess-contribution, there are many ways to remove the excess but I did not use any appropriate form to remove $6,000. I just transferred that to a Brokerage account.  

I contacted Vanguard but the answer was not helpful. They said I need to talk to my tax advisor about handling the excess contribution.

Please help me out. I file my own tax and don't have a tax advisor. I appreciate your help! 

[DanaB27]

To recap, you made an excess contribution in 2021 for 2021 and just removed the excess without earnings as a regular distribution in 2021 and therefore receive a Form 1099-R with code J.

You will enter $0 for the question about prior year excess contributions since it seems you only had an excess in 2021 and not in 2020 or prior years. 

Did you have any earnings in regards to the excess contribution? Did you remove them as well? If yes, then you can enter on the penalty screen during the IRA contribution interview that you removed the $6,000 excess contribution by the due date and avoid the 6% penalty.

To avoid the 6% tax on excess contributions, you must withdraw:

• the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• any income earned on the excess contribution.

You will have to enter your Form 1099-R on your tax return:

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Answer all follow-up questions carefully.

[monicaolala]

Thank you so much for your reply. 

I did not have any earnings in regards to the excess contribution. I accidentally contributed $6,000 to Roth IRA in 2021 and removed it a couple of days later as a regular distribution, not a characterization form. 

And I do not have any excess contributions in 2020 or prior years. So I will enter $0 for this tax year. 

I do have one more question. What if when I file taxes for 2022, what should I enter for the same questions: 

Your Excess Roth IRA Contributions for Prior Years. 

Should I enter $4,500 and then answer the next questions that I removed that excess contribution to avoid the penalty? Even the way I removed it was just a regular transfer, not using an appropriate form?

Thank you!

[DanaB27]

Yes, you will enter $0 for the question if you had any excess contributions in 2020 or prior years. You will enter the $6,000 as removed on the penalty screen. 

Since you did not have any earnings on the excess contribution you have completed the withdrawal of the excess contribution and won’t incur the 6% penalty for 2021.

Next year on your 2022 tax return you will enter $0 for the question “Your Excess Roth IRA Contributions for Prior Years.” Because you removed the excess in time and did not have earnings.

@monicaolala