If you made excess Roth IRA contribution, you’ll be subject to a 6% tax penalty on the excess amount for every year that it stays in the account.
You can either accept this 6% penalty or take measures to avoid it before the tax filing deadline (this includes any filing extensions you may have).
If you choose to pay the penalty, you then have two options:
- Apply the excess to next year.
- Remove only the excess contribution after your tax deadline.
If you’d rather avoid the penalty, you have two options (both must be completed before your tax filing deadline):
- Withdraw the excess contribution plus earnings: Keep in mind that the earnings are included in your taxable income for the year the excess contribution was made, so you’ll still receive a 1099-R to report these earnings on your tax return.
- Recharacterize the Roth IRA contribution as a traditional IRA contribution: Contact your plan administrator for guidance on this process. After you’ve made your recharacterization, see how to record this process in TurboTax.