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You will have to request the withdrawal of the excess contribution plus earnings by the extended due date. Then you can avoid the 6% penalty and can enter on the penalty screen that you withdrew the excess contribution amount by the due date (IRA contribution interview).
Or you can request the recharacterization of your Roth contribution to a traditional IRA (if you only have an excess because of the Roth MAGI limit).
Please see What happens if I made an excess Roth IRA contribution for additional information.
You will get a 2023 Form 1099-R in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:
To create a Form 1099-R in your 2022 return please follow the steps below:
Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.
You will enter the recharacterization when you enter the contribution to the Roth IRA
Thank you so much for your detail explanation.
I just got off the phone with my bank and I have submitted the Recharacterization form to move from ROTH IRA account to my traditional IRA.
They told me even after the form submitted, the action might not get completed by tomorrow 4/18 because they are backed up with all IRA requests from everyone.
My question: Do I need to submit "extension" for my tax return until I can confirm the transaction actually happened?
Yes, you might want to submit an extension if you don't know the earnings so you can fill out the explanation statement correctly.
Please see How do I file an IRS tax extension? Please be aware, an extension does not give you extra time to pay your taxes, which are due on April 18.
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