Removing excess roth contributions

Forum|Forum|1 year ago
February 15, 2025
1 reply
0 views

As I was completing my tax return, Turbo tax noted I had an excess Roth IRA contribution because of the MAGI limit. I had contributed $8000 in 2024 (for tax year 2024), and based on my MAGI, $1700 was an excess. So I withdrew the excess from Vanguard--they computed the earnings at $365, for a total of $2,065 withdrawal. I entered a 1099-R based on instructions I found here, and it correctly added the $365 to income in 2024. I did have to manually enter it was a corrective withdrawal before the due date, because TT was calculating a penalty, even though I had answered those questions indicating it would be done. The problem I have now is that with the additional $365 income, TT is now showing I still have an excess contribution of $200 because my MAGI is higher after the income from the corrective withdrawal. If I withdraw more and there is earnings on that, this could be an endless circle, as the MAGI will change again. How is this supposed to work? Thanks.

Best answer by DanaB27

If you are in the phaseout range it is best to withdraw a bit more than the excess contribution shown to avoid this endless circle.

Another option would be pay the 6% penalty on the new excess contribution on your 2024 return and then either apply the excess as a contribution in 2025 (if you are allowed to make Roth IRA contributions) or remove the excess as a regular distribution without earnings after the extended due date (between October 16th and December 31, 2025).