return of excess contribution , ROTH IRA

[stantonporsche]

My daughter, accidentally opened up a ROTH IRA for 2024

I just found out that she opened it up with past savings and not earned income 

I am now helping her return excess of contributions before tax filing April 2025 to avoid any penalties 

Based on what she place in ROTH IRA, 7000 dollars with earnings of 1800 dollars 

how much taxes will she have to pay on that 1800 dollars 

She is a student and is at the lowest tax bracket.  

will brokerage account, fidelity , report this out as long term capital gain 

I made sure she sold stock from older trades, not sure if short or long term makes any difference when you have to sell stock to return of excess contribution

She opened up past ROTH IRA when she had a job few years ago. 

[Opus 17]

If she is an employee, she can contribute up to her compensation from working, which is defined as her W-2 box 1 wages minus any amount in box 11.

Any excess contributions will be assessed a 6% penalty this year and every year after, as long as the excess remains in the Roth IRA.  To remove the excess, contact the Roth IRA and request a removal of excess, this is a special procedure, not a regular withdrawal.  She must withdraw the excess contributions AND any earnings that are attributable to the excess contribution.  Because this is a Roth IRA, removal of the excess contribution is not taxable, but the earnings are reported as miscellaneous taxable "other income" on her 2024 return, even if the earnings are not actually paid out until 2025.

With earned income from a job of $1800, she would not actually owe income tax because that is far below the standard deduction.  She might owe income tax if, in addition to the wages, she has more than $450 of unearned income (interest, dividends, gambling, or other income).  This is because a child's investments can be taxed at a higher rate, to prevent parents from avoiding tax on their investments by putting them in their childrens' names.