Roth IRA Excess Contribution in 2022

[zmdw02]

In 2022 I contributed $6,000.00 to my Roth IRA. When filling out my taxes I found out that I over contributed to my Roth IRA by $2,950.00. My Roth IRA had a loss at the end of 2022 of 17.8% so shouldn't I withdraw $2,424.90 to get in compliance with annual limit or the full $2,950.00?  I know that if my Roth IRA had a gain, I would have the withdraw the gain as well as the $2,950.00.

[fanfare]

you must submit "removal of excess and earnings" form to custodian for $6,000

before Oct 15 to avoid penalties.

@zmdw02 

[zmdw02]

I only have to remove the excess but I am unclear whether $2,950.00 needs to be removed or should this $2,950.00 be adjusted down due to the loss in the account.

[Critter-3]

You must tell the IRA custodian that you need to remove the excess contribution of $2950 plus any earnings attributed to that excess amount ... the broker will do the rest. 

[zmdw02]

There were no earning on my contributions.  There was a loss.  Do I remove the total excess contribution of $2,950.00 or should I adjust this amount down by the 17.8% loss?  The adjusted amount would be $2,424.90.

[Critter-3]

All you need to do is tell the broker you has an excess contribution of $2950 and they will do the rest.  

[zmdw02]

I did tell the broker that I had an overage of $2,950.00 but they removed $2,849.63.  I do not know how they calculated this amount.  When I enter everything in TurboTax using the $2,849.63 they removed it looks like they should have removed $2,950.00 as it shows I have a $100.00 excess.  My understanding is this excess will cost me 6% per year until I get it fixed.  I am just trying to figure out the correct action to take.  Thanks for the help I have received so for.  If anyone can confirm which of the above amounts is correct I would appreciate it.  I would like to make sure what is correct before I talk to the brokerage company if possible.

[Critter-3 · Accepted solution]

It is correct ... let's think of it this way.  If you put in $2950  and that was the only money in the IRA but then later  found you could not make the contribution and requested the excess $2950 be withdrawn  BUT  the investment lost money so there was only $2849.63 in the account then that was the only amount you could possibly withdraw. 

In the program you will enter the 2023 1099-R for the distribution as printed. 

In the program, on the 2022 return, in the IRA entry section you were told you had an excess contribution and at that time you were asked if you would remove the excess by the filing deadline (which you did) so the issue is now moot. 

[fanfare]

sorry I did not pay attention that you were only slightly over the limit and had an excess of $2,950, not $6,000.

The form is the same in either case.

@zmdw02 

if you had positive earnings you would have to take out more than $2,950 because the earnings go back into your AGI, raising your AGI. You would again have an excess contribution.

[fanfare]

1. @Critter-3 

That's moot, not mute.

[Critter-3]

So true ... time for bed. LOL

[zmdw02]

Thanks everyone for walking me through this issue!

Have a GREAT day!

[dmertz]

You had $2,950 of contribution returned, not $2,849.63.  $2,849.63 is the adjusted amount distributed, not the amount of contribution returned.