Excess Roth IRA Contribution - how are earnings treated?

[fastlapp]

Single Filer. I contributed $100 to a Roth IRA account in Jan 2024 for tax year 24. The contribution is ineligible because I will earn well above the income threshold for Roth contributions. The account has grown to ~$10,000 (which consists of $100 contribution and $9,900 in gains from stock trading).  

I plan to complete a return of excess contribution of the $100 and pay the $6 penalty. Am I required to withdraw the entire account value, or just the excess contribution? If I only withdraw the contribution of $100, are there any penalties for leaving the gains (e.g. the remaining $9,900) in the Roth? I understand I will need to pay taxes on this value once withdrawn unlike normal Roth IRA withdrawals, but I am trying to understand the downside of leaving gains in the Roth for future tax years, instead of withdrawing the complete value of the account in tax year 2024. 

[Opus 17]

If you withdraw the excess contribution by the deadline (April 15, 2025), there is no penalty.  You must withdraw all the earnings attributable to the excess contribution, and pay regular income tax on the earnings (there is no additional 10% penalty). The earnings are reported as taxable income on your 2024 return, even if you perform the removal procedure in 2025. 

If you don't withdraw the excess, it is subject to a 6% penalty every year going forward, unless you "use it up" in the future.  (For example, if you are eligible for a Roth in 2025, you can contribute $7000.  If you contributed $6900 or less, the $100 excess from 2024 would be applied to the 2025 limit and would not be excess any more.)

As far as I know, there is no penalty on the earnings if you leave the excess contribution and the earnings in the account, so you could choose to pay $6 per year for the next 40 years, rather than paying $2200 income tax now.  That's not how it's supposed to work, but you seem to have made some extraordinarily profitable trades.

I feel like I may be missing some option here, so I will ask for a second opinion, @dmertz 

[fastlapp]

Thank you. Yes, this confirms what I have read - there is only a penalty for the excess contribution. 

It seems to me that this is "not right" since it's not the spirit of the Roth, but I cannot find anything about penalties on the earnings. There is benefit to me for leaving the account open, so I'm inclined to just pay the $6 a year (or perhaps wait to withdraw until a year in which I am not in the top marginal tax bracket). Feels like that should not be allowed, though I can't find anything stating as such. 

[Opus 17]

"It seems to me that this is "not right" since it's not the spirit of the Roth"

Sometimes weird stuff happens, resulting in a situation that follows the regulations but has an unexpected outcome that is not anticipated by the people who wrote the regulations, or which is so rare that they didn't think it was worth addressing.  You may be the beneficiary of that kind of thing.  But as I mentioned, I would like another expert to give a second opinion in case I missed something.