Excess Roth Contribution Question 2

[martymoose]

Entering Excess Contribution:

Rounding off numbers for simplicity.  

Contributed $7000 on May 13, 2020 for tax year 2020.  Withdrew $7000 plus earnings of $3000 = $10000 on April 20, 2021.  $3000 taxable.  [tax day extended to May 17 for 2021]

While entering answers to TT questions, showed I would owe EXTRA TAX BILL of $300 (10%).  Is this a penalty?  I thought I was withdrawing in time to avoid a penalty.  At completion-I owe $300 + $700 federal + $125 state = $1125 tax on $3000.  A 38% tax!  Brutal!  Does this sound correct? Age over 60 but roth only held for 3 years.

[DanaB27]

No,  the 10% early withdrawal penalty will only apply if you are under age 59½.  Since you are over 591/2 please make sure you enter the $3,000 on the "Did you use your IRA to pay for any of these expenses?" screen under "Another Reason" to get the exemption from the penalty since you are over 59 1/2. You will get to the screen by continuing through the questions after you entered your 1099-R.

If you do not remove the excess contribution then you would have to pay a 6% penalty each year as long as the excess is left in the account.

Please see What happens if I made an excess Roth IRA contribution for additional information.

[Edited 1/27/2022 | 10:01am PST]