Calculating Roth IRA Overcontribution

Forum|Forum|3 years ago
April 5, 2023
7 replies
47 views

I realized that I overcontributed to a Roth IRA this year. As it is still before the filing deadline, I will now withdraw the overcontribution amount (plus earnings).

Part 1: Regarding the "...plus earnings," my account balance is actually at a loss, so I'm trying to determine how much I actually need to withdraw. Easiest to discuss with some hypothetical numbers:

* Let's say the account balance was $10,000 prior to this year's (over-)contribution.

* Then I contribute $6000 this year, bringing the balance to $16,000

* I now realize that I was only eligible to contribute $4000 (so $2000 was an overcontribution)

* Today, the account balance is $15,000 (aka it has lost $1000 in overall value since the contribution)

* How much do I need to withdraw?

It seems most logical to me that it would just be: ($16,000-15,000)/16,000=6.25% loss. Thus I withdraw (1-.0625)*$2000=$1875? Or maybe the IRS still requires you to withdraw the full $2000? Or maybe they require something more convoluted, like any dividends are "earnings" regardless of the total balance, etc?

Part 2: Once I've determined & withdrawn the proper amount, do I need to do anything special in TurboTax? Or I simply fill it in as if I originally contributed the proper amount, & I don't have to do any extra paperwork?

Thanks in advance

TurboTax Home & Biz Windows

fanfare

Level 15

when your contribution is losing money, you must request and report the withdrawal of the contribution that is in excess.

you will in fact get back less money if your allocated earnings are negative.

This is the simpler situation to handle because your MAGI will not increase.

@taxes4739

taxes4739Author

Level 5

Thanks for the quick response - however, I'm still not clear on precisely how to proceed. How do I calculate the proper amount to withdraw (i.e. per the example above)? How do I report it?