topic Re: Removing excess roth contributions in Retirement tax questions

Removing excess roth contributions

tgwtax — Sat, 15 Feb 2025 03:43:07 GMT

As I was completing my tax return, Turbo tax noted I had an excess Roth IRA contribution because of the MAGI limit. I had contributed $8000 in 2024 (for tax year 2024), and based on my MAGI, $1700 was an excess. So I withdrew the excess from Vanguard--they computed the earnings at $365, for a total of $2,065 withdrawal. I entered a 1099-R based on instructions I found here, and it correctly added the $365 to income in 2024. I did have to manually enter it was a corrective withdrawal before the due date, because TT was calculating a penalty, even though I had answered those questions indicating it would be done. The problem I have now is that with the additional $365 income, TT is now showing I still have an excess contribution of $200 because my MAGI is higher after the income from the corrective withdrawal. If I withdraw more and there is earnings on that, this could be an endless circle, as the MAGI will change again. How is this supposed to work? Thanks.

Re: Removing excess roth contributions

DanaB27 — Sun, 16 Feb 2025 22:30:39 GMT

If you are in the phaseout range it is best to withdraw a bit more than the excess contribution shown to avoid this endless circle.

Another option would be pay the 6% penalty on the new excess contribution on your 2024 return and then either apply the excess as a contribution in 2025 (if you are allowed to make Roth IRA contributions) or remove the excess as a regular distribution without earnings after the extended due date (between October 16th and December 31, 2025).

Re: Removing excess roth contributions

tgwtax — Mon, 17 Feb 2025 13:33:19 GMT

That is what I suspected, but thank you for confirming and also for the other options.

Re: Removing excess roth contributions

LucyLiu5 — Fri, 04 Apr 2025 00:53:12 GMT

Is it mandatory to add the 365 earnings to income in 2024 or can add it to income in 2025 so as to avoid the cycle?

Re: Removing excess roth contributions

DanaB27 — Sat, 05 Apr 2025 13:18:29 GMT

Yes, if you made the contribution in 2024 then the earnings have to be reported on your 2024 return.

Pub 590-A states: "The earnings are considered earned and received in the year the excess contribution was made."

@LucyLiu5

Re: Removing excess roth contributions

LucyLiu5 — Sat, 05 Apr 2025 17:01:54 GMT

Thank you very much! I learned a lot as the first time self-preparer.