Withdraw Excess Roth IRA from Merrill

[LucyLiu5]

I need to withdraw part of my IRA from Merrill Edge Roth IRA account, such as $2000 as 2024 excess contribution. I had cash $500 and securities in this account. I contributed $1500 yesterday as my 2025 contribution to make my cash up to $2000 in order to not sell security.

Questions:

In withdraw form, can I fill in withdraw cash only $2000? Can the recently contributed $1500 be withdrawn for 2024 excess withdraw, or I have to withdraw the funds which were actually what I contributed for 2024?

Merrill customer service did not answer my question. So, try here to make sure the withdraw will be processed timely before my filing.

Much appreciated!

[Opus 17]

It's not clear why you have a $2000 excess contribution but only $500 in the account.  Did you previously withdraw money from this account, or do you have more than one Roth IRA account?

If you have more than one account, you can withdraw the excess from any Roth IRA, it does not have to be the account that the excess was contributed to.

If you previously withdrew funds in 2024, or in 2025, so that you have an excess contribution of $2000 but only $500 in the account, you can contribute $1500 as a contribution for 2025, and then withdraw $2000 using the special "withdrawal of excess contribution" procedure, which will be for the 2024 tax year even though the withdrawal happens in 2025.  Once the money is contributed into the account, it loses its "identity" as to where it came from.  It is just considered part of your total contributions, it does not have an identity as this dollar was from 2024 and this dollar was from 2025. 

[fanfare]

return of excess contribution:

before tax filing date including extension: positive earnings allocable to the excess are 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 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.

[fanfare]

@LucyLiu5 

I thought you had an excess in 2023 .

 Now you have an excess in 2024 also ??

[fanfare]

you have to remove enough 2024 contribution to 

a) resolve excess

b) leave enough unused contribution to offset your 2023 excess, as we discussed elsewhere.

@LucyLiu5 

[LucyLiu5]

@fanfare This question is for my daughter. Thank you for remembering my questions. 

How would you approach Roth IRA contributions if your AGI falls in the middle of the phase-out range and fluctuates due to passive income?

Would it be better to:
1️⃣ Use the Backdoor Roth at the beginning of the year to avoid the risk of excess contributions?
2️⃣ Wait until year-end when AGI is more predictable to contribute directly if eligible?

Curious to hear what works best for others in a similar situation!

Thank you! 

[LucyLiu5]

@Opus 17 Thank you very much! You answered my question clearly. It’s great to learn that money loses its "identity."

I currently have $500 in cash, with the rest in funds. To minimize selling securities and use cash first, I will contribute $1,500 for 2025 to generate enough cash for my 2024 withdrawal.

Much appreciated!

[fanfare]

" Wait until year-end when AGI is more predictable to contribute directly if eligible? "

Once your compensation exceeds the contribution limit, you can do a full  backdoor Roth contribution

If your starting Trad IRA value is zero, it doesn't matter what procedure you use.