Excess Roth IRA Contribution and subsequent removal

[ArnoldR]

I am 19-year old full-time college student in Texas. I worked for a few months in a restaurant last year 2025 thus earning a W2 form for this 2025 tax year with reported wages of $1500. I opened a Vanguard Roth IRA account but mistakenly put $7000 (most from gifts) exceeding the $1500 wages I earned in my job. TurboTax says I will incur penalty every year for excess contributions because of that. I then requested to Vanguard to remove the excess contributions I made for Tax year 2025  by transferring $6887 to a newly-opened non-retirement brokerage account, leaving some residual balance in the Roth IRA account of about $14.43. So the retirement account summary from Vanguard is now showing: 2026 Contributions: $0; 2025 Contribution: $7000; 2026 Distributions: $6887. Should I still enter 2025 Contributions in TurboTax now that I have withdrawn them all as excess contribution? Will that withdrawal of excess Roth IRA contribution for 2025 , now ensure I avoid the penalty on my 2025 excess contribution to Roth IRA that TurboTax earlier mentioned?

[guywong · Accepted solution]

You are entitled to contribute 100% of your earned income, up to $7,000, into your Roth IRA for 2025.  Since you put in more than that amount, you are required to withdraw the excess contribution amount, plus earnings from Vanguard.  You should contact Vanguard to straighten this.  The excess earnings is reportable in your 2025 tax return.  Vanguard should know what to do and issue corrected 1099.

The proper transaction is to withdraw $5,500 ($7,000 limit - earned income of $1,500) plus earnings from your Roth IRA.