Removing excess contribution into Roth IRA after the deadline

Forum|Forum|1 year ago
December 10, 2024
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I contributed 7500 in April 2024 to a Roth IRA for the year 2023. Now I realize that I do not qualify and I am trying to remove the money. I have read on the fidelity website that if you are removing the money after the deadline, then the IRS does not require calculating the gains, the distribution is taken as a normal distribution and I incur a 6% penalty. Does this mean I only withdraw 7500 irrespective of how much gain or loss? Is it true that the contribution has to be taken as normal under these conditions?

Thank you.

Not A Product Question

Opus 17

Employee

If you don't remove the excess (because it is after both the April 15 and October 15 deadline), then you must pay a 6% penalty on your 2023 tax return. If you already filed for 2023 and did not report the excess, you must amend your return and pay the penalty.

Then, to remove the excess now, you can take a normal distribution before December 31. It will be taxed according to the rules for normal Roth IRA distributions, so it probably won't be taxable at all. But it's important to keep track. The earnings can stay in the account without additional penalty.

Withdrawals from Roth IRAs are always taken as contributions first, conversions second, and earnings last. Withdrawal of contributions is never taxed, regardless of your age. So as long as you have at least $7500 in the account that you can withdraw without dipping into previous conversions or earnings, it won't be taxable. Turbotax will ask for the total of prior contributions and prior withdrawals, to determine if you are withdrawing contribution, conversion or earnings. You will also need to keep track of this withdrawal as well as any other contributions, because this calculation will come up if you make any other withdrawals before age 59-1/2.