Roth IRA Over Contribution due to income

[chaudiep26]

I contributed 6k in 2022 to my Roth IRA and I realized that my 2022 income does not allow me to make any contributions. I used the 6k to purchase stocks and my stock value have decreased, I did not make any gains. I don’t want to sell the stocks to take out the over contribution.

What are my options?

Can I apply the excess contribution to next year? How do I do this if I already purchased stocks? Will I pay a penalty if I take this route?

How do I report this on my tax?

[HopeS]

Yes, there will be penalty on the excess contribution. To avoid the 6% tax on excess contributions, you must withdraw:

• the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• any income earned on the excess contribution.

If you don't take the money out the penalty on the excess would be 6% each year until the excess is withdrawn. Therefore, if you are not going to withdraw the excess make sure your Roth contribution in 2023 is your contribution limit minus the excess contribution.

See IRS publication:

IRA Contribution Limits

@chaudiep26 

[chaudiep26]

For the 2023 year my income will allow me to make an IRA contribution. If I don’t take the money out this year, pay the 6% penalty, and don’t contribute anything for 2023 will I still pay 6% penalty for 2023 tax year?

Thank you @HopeS 

[HopeS]

You can still contribute in 2023 as long as your total contribution for 2023 is the  $6,000 excess from 2022 plus your 2023 contribution. For example, if your contribution limit is $6,500 and the excess is $6,000 you can contribute $500 without penalty.

@chaudiep26