Hi,
I believe I contributed too much to my Roth IRA, but I don’t know how much I need to withdraw to fix it. In 2019, I contributed the maximum of $6,000. As I am looking over my papers in early 2020, it turns out I sold more stocks than I thought, pushing my 2019 modified adjusted gross income (MAGI) over the lower limit, which is $193,000 for married-filing-jointly. However, I am not up to the upper limit, which is $203,000 for married-filing-jointly. In other words, I fall in in the phaseout area between the two limits.
Let’s assume my MAGI is exactly $198,000. Since I am half-way between the limits, my contribution limit would actually be $3,000. So, all I have to do it remove the excess $3,000 plus earnings, which my brokerage firm will calculate for me, but I approximate to be about 20%, or $600. But here is where I am confused, because this becomes circular! If I pull out the $3,000 excess plus $600 earnings, doesn’t that additional earnings amount need to be reported in my 2019 income? Doesn’t that mean my MAGI actually goes up to $198,600? Because I am in the phaseout area, that actually pushes down my contribution limit to $2,640, which means the excess contribution is actually $3,360! So, I actually need to pull out $3,360 – not $3,000! But then, earnings on that new amount is $672, which pushes the income up even more! Ahh!
If the earnings attributable to the excess contribution count towards my 2020 income, then I don’t actually have an issue.
Can you please provide some clarity on this circular nature of this calculation when in the phaseout area? Should I just pull out the full $6,000?
Thank you,
Green
