Wrong request for excess contribution removal

Forum|Forum|1 year ago
March 13, 2025
1 reply
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Hello, I recently made wrongly a request for excess contribution removal from my Roth IRA account.

I got confused about the Roth IRA and Roth 401k contribution limits, since I thought they share the same max limit of $6000 (in 2022).

In 2022 I contributed the max $6000 in my Roth IRA and I also contributed $1900 in my employer's Roth 401k. So I thought I overcontributed in 2022 in my employer's Roth 401k the amount of $1900 and made a request to Vanguard to remove this excess contribution from my Roth IRA. But apparently I was wrong since they share different max limits.

I called them today to cancel this request and they told me that the cannot cancel this requet and on January 2026 I will receive a 1099-R for this and a check with the excess amout distributed. So I'm going to receive a 1099-R for an overcontribution that I never made.

Here's my questions:

a. Should I ignore this 1099-R and never import it in my taxes next year? I understand that I have to pay a penalty of 6% for each year (2022, 2023, 2024 and 2025) of this $1900 amount if I enter it in my tax return for something I never did.

b. What is the way I should treat this mistake?

c. They money that I wil lreceive back can be contributed again in my Roth IRA 2022 plan?

Not A Product Question

dmertz

Level 15

Because the Roth IRA contribution was a contribution for 2022, the only type of distribution that was permitted to be made from your Roth IRA with respect to this distribution is an ordinary distribution which would be eligible for rollover should you choose to do so (assuming that it would not result in a violation of the one-rollover-per-12-months limitation). However, it's also possible that Vanguard has processed a return of contribution before the due date of the corresponding tax return, which would only be permissible if what they were returning was a separate Roth IRA contribution made for 2024 or 2025, in which case the distribution would not be eligible for rollover (but would leave open the possibility to make a new contribution for that year). Vanguard reps have been known to confuse returns of contributions after the due date of a tax return with returns of contributions before the due date of the tax return.

To be sure what sort of distribution you received, you'll need to ask Vanguard.

There should be no delay in you receiving the check. Only the issuance of the Form 1099-R is delayed until January 2026.

mpapadopAuthor

Level 2

So assuming that this amount wont be contributed again since I already max out contribution for the current year... for this $1900 I will have to pay 6% penalty for the 2022, 2023, 2024 and 2025 because I request a contribution removal?

Is there something I can do, not paying any penaly or tax since in reality I never overcontributed since the Roth IRA and Roth 401k are different accounts sharing different limits?

mpapadopAuthor

Level 2

"So what you're saying is that a rollover should include the same dollar amount of the same share name ie $901.80 of VFIAX and $1000.01 of VTSAX (that means rollover more shares from my brokearge acccount to the Roth IRA since the market went down and same dollar amount means more shares) or to rollover less money but same amount of shares distributed?"

The latter.

https://www.irs.gov/publications/p590a#en_US_2024_publink1000230595

What I said was that the exact same shares that were distributed must be rolled over. That means moving the 1.6380 shares of VFIAX and the 7.3671 of VTSAX back to the Roth IRA. The fact that the share value has changed is irrelevant to rolling over the exact same property that was distributed, despite the fact that the Form 5498 will show a different value rolled over than the value distributed. You'll still report it as a rollover of the entire distribution which was valued at $1,901.81 at the time of the distribution. Vanguard should be tracking these two share lots, so there should be no problem with this rollover.

I suggest that if in the future you ever need to do a return of contribution that you do it in cash by selling shares inside the IRA to have the cash in the IRA necessary to perform the distribution. This also avoids any confusion as to whether there was one distribution or two, avoiding the complication that you are limited to rolling over one distribution in a one-year period. In this case it appears that there was effectively a single distribution comprising amounts form two different funds allowing the entire amount to be rolled over, but this could look to the IRS as thought there were two distributions if as is typical for Vanguard that the two different funds are reported on separate Forms 1099-R filed with the IRS.

Thank you for clarifying. Your help is really very much appreciated!

Vanguard says that since the distribution from my Roth to my brokerage account was in shares instead of cash or check, they can only serve this rollover only as a dollar amount and not by moving number of shares.

That means that I will receive back the same amount that was distributed ie $1901.81 but I will receive more shares since the stock market went down since the last month.

However what they also told me is that they dont report number of shares in the IRS. For the distribution I did I will recieve a 1099-R which shows only dollar amount distributed, and in 5498 that it will be generated for 2025 it will also show dollar amount ie the amount I contributed $7000 and the amount of rollover $1901.80, they dont report shares in IRS. It is like I was doing this rollover in cash instead of moving shares.. So they dont expect to have any issue with the IRS.

Based on what you mentioned and justified with the link from the IRS, if I have to pay taxes on this rollover, that will be taxes only in the difference ie if the same amount of shares distributed the day of the rollover have avalue of $1700 then I will have to pay taxes on the $201.81 or for the entire amount?