Excess Contribution and Closing IRA

[mydogsowner]

Back in 2021, I erroneously made an excess contribution to my Traditional IRA.  I have just been paying the annual penalty on it.

This year however, I want to take my money out of it and close the IRA.  I understand I will have to pay taxes on it.  Will I have to pay extra fees or penalties for the excess contribution that I never took out?

Or, when I close the account and pay the taxes on that distribution, is the excess amount already covered in those taxes?

[DanaB27]

If you are under 59 1/2 then you will have a 10% early withdrawal penalty on any taxable distribution. Depending on your income tax bracket the withholdings on Form 1099-R might not cover all taxes due.

Generally, you only need to remove the excess contribution amount without any earnings to fix the excess contribution since you are removing the excess after the due date of the 2021 return. Please request a regular distribution.

You will still have to pay the 6% excess contribution penalty for 2024 since you didn't remove the excess by December 31, 2024. 

Please see Return of Excess Traditional IRA Contributions for additional information.

[Edited 2/5/2025 |2:58 am PST]

@mydogsowner 

[mydogsowner]

Thank you for your response!  I'm still concerned that I do not need to apply this formula?  I've made a lot of money in the IRA after that excess contribution.

Net Income = Excess Contribution + (Adjusted Closing Balance - Adjusted Opening Balance)/Adjusted    Opening Balance

Then remove the net income + the excess contribution

 I'm so worried I will have to pay hefty penalties and interest if I make an error.