What procedure do I need to follow to unwind excess contributions listed on line 24 of my 2021 married filing jointly 1040 tax return?

[Coloradical]

I need to understand exactly how I unwind the "excess" procedurally from our brokerage accounts, and also how to account for the unwinding in 2022's filing.  It has been over a year since we made the excess contributions.  Any thoughts would be much appreciated.

[SantinoD]

Can you clarify what type of retirement account this is? IRA. 401k?...etc

[Coloradical]

Thanks for the quick response.  We contributed to our Roth IRAs.

[SantinoD · Accepted solution]

You won’t have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw any interest or other income earned on the excess contribution. You must complete your withdrawal by the date your tax return for that year is due, including extensions.

If you timely filed your 2021 tax return without withdrawing a contribution that you made in 2021, you can still have the contribution returned to you within 6 months of the due date of your 2021 tax return, excluding extensions. 

If you choose to pay the penalty, you then have two options:

• Apply the excess to next year: You can leave the excess contribution in the Roth IRA and apply it to next year’s contribution. Be sure to take this into account when determining your contribution amounts for next year
• Remove only the excess contribution after your tax deadline: After you file, you can request a regular distribution to remove the excess contribution (without earnings) between October 17 and December 31, 2023. You’ll have the 6% excess contribution penalty on the 2021 return, but you can keep the earnings in the Roth account, and can avoid the penalty on next year’s tax return

Here's an article that explains in more detail: What happens if I made an excess Roth IRA contribution because my modified adjusted gross income is ...

[Coloradical]

Thanks @SantinoD for your in-depth analysis and explanation.  Super helpful.

In regards to removing only the excess contribution after the tax deadline, as of this month (March 2023), I was able to remove the excess contributions (without earnings) from my retirement brokerage account.  Since I removed the excess between October 17, 2022 and December 31, 2023, how do I let the IRS know that I have withdrawn these excess contributions on 2022's 1040 Tax Return?  I understand the 6% contribution penalty will remain on the 2021 return, but I would like to make sure 2022's Return avoids any further penalties from the 2021 excess contribution mistake.

Any advice would be amazing.

[fanfare]

"as of this month",

this month is in 2023 so the resolution goes on your 2023 tax return.

you still owe 6% for leaving it in throughout 2022.

@Coloradical 

after tax due date including extensions: you distribute the excess amount being carried forward on 5329, (or offset it with currently allowed contribution) .

earnings stay in the Roth account.