Roth IRA Contribution - Actual and Excess Contribution

shugu88 · ‎January 10, 2026

I would like to ask for some guidance on the following scenario:

1. I didn't know what my total income was going to be and thought that I would contribute less than the projected limit. The amount I actually contributed was $2792

2. Anticipate that the earning from the actual contributions is approximately $562 (long- and short-term capital gains and dividends).

3. Based on actual income, the total allowable ROTH IRA contributions was $960.

If I withdraw the actual contribution, can I leave the earning and treat that as my ROTH IRA contribution?

I am under the assumption that the actual contribution can be withdrawn without any tax and penalty because it is post tax contribution.

fanfare

@shugu88

return of excess contribution:
---The rules are different for a contribution for this tax filing year, and a contribution for earlier years.

In either case you must take out the excess contribution.

You didn't say what year.
Assuming you made a contribution for 2025 ...

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before tax filing date including extension: positive earnings allocable to the excess are distributed and included in income on 1040 Line 4b for the year of the contribution. negative earnings are ignored; in any case, for purposes of basis, consider the original contribution amount as returned.
["Include the earnings in income for the year in which you made the contributions, not the year in
which you withdraw them."]

You must have a) filed by tax day, or b) requested an extension of time to file by tax day to take advantage of the Oct 15 deadline.

positive earnings removed are no longer penalized 10% if you are under age 59 1/2. (eliminated in 2023)
Consult your custodian to obtain the correct removal form for "excess plus earnings".
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You can't resolve the excess contribution prior to the tax return due date without the custodian's help. your action generates a 1099-R and will be a problem next year if you do it yourself.

shugu88

You are correct, the contribution was for 2025.

I was planning on using the correction of excess contribution form provided by ROTH IRA custodian.

The follow up question is can I leave the earning ($562) in my Roth IRA as my Roth IRA contribution for 2025 as I am allowed to have up to $960 in my 2025 ROTH IRA, and remove the actual contribution ($2792) via the excess contribution form? If so, does this trigger a 1099-R?

fanfare

If your income permits $960 (phaseout rule) , your nominal excess contribution is $1,832 and that amount plus a fudge factor is the amount you state on the form and for which earnings will be calculated.

In this case you must add a compensating fudge factor to the excess because the allocable earnings are in 2025 and that will reduce the permitted amount to below $960.

Once the money is returned, you have until April 15, 2026 to top off your 2025 contribution to the new permitted amount.

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If you find this too complex, request the return of 100%, but the total earnings will reduce your permitted contribution even more.

@shugu88