How to calculate and FIX Excess Roth IRA Contributions

[@annek312]

Great explanation and examples, thank you! My situation is that I have 2022 (that I missed last year)and 2023 excess contributions in the same ROTH account. I am planning to work with the investment bank to re-characterize the excess into a traditional IRA. Since I haven't filed yet, there won't be any penalty or need to amend the 2023 return, as I understand it. Can I use this process for both tax years together, and have it all recharacterized? Or should I take care of the 2023 excess first and then file an amended return for 2022 tax year? Not sure what to do. Thank you!

[@Anastasios912]

Hey there, question about excess contributions for 2022 that was reported in that year's 5329. If I've now withdrawn the amount (after the deadline so untimely) and applied it to a future tax year, do I need to amend the prior year's 5329? If not, what do I have to put for my 2023 taxes to demonstrate that I've withdrawn the excess? And will this have any implications for 2024 taxes? Thanks in advance.

[@garrettjensen5647]

Where can I find this template

[@Mike-oe6fl]

Are you able to send me the excess contribution worksheet?

[@Zac-ys3hw]

Thank you for your videos, they’ve been super helpful! I’m trying to open and use the document you provide to do my NIA calculations, but it’s not working. When I type some of the numbers (in the accumulative total, for example) they don’t transfer to the correct boxes. So, nothing is being computed. Any advice?

[@TravisSickle]

Try downloading it. Don't use it in your browser. that may be the issue.

[@Zac-ys3hw]

I got it working on my wife’s computer - thank you!

[@wattsobx]

where you put dividends reinvested? Is that part of the amount in line 4 "subsequent contribution"? Also what happens if the market tanked which mine did and my balance before removing excess is actually lower than the opening? Thanks!

[@TravisSickle]

dividends are just gains in the Roth. If account is at a loss, then NIA is negative and take out less.

[@Zac-ys3hw]

One more detailed question (so sorry!). I have the prior day closing balance of the day before my first excess contribution (which is 8,837.02). Then, shortly after that my account changed hands and the balance dropped to $0, and $8,329.69 was transferred into my new account. That transfer is, supposedly, the money that was already in the account before I contributed my excess contribution, but then it was 'transferred' back in because my account owner changed... My brokers said that the market value of my holders transferred out of my old account on 1/27/2022 was $8,049.43. Then the market value of my holdings transferred into my account on 1/28/2022 was $8,329.69. I suppose I would have to add these values in, because it would be a transfer OUT of my old account ($8,049.43 added into Adjusted Closing Balance) before being transferred INTO my new account ($8,329.69 added into Adjusted Opening Balance). Thoughts?

[@TravisSickle]

Hard to follow and I don't want to guess here. Should get help with calc from your advisor or accountant to get it right. Sometimes your broker will do it too.

[@Ram-rn8yt]

Hi Travis. I made an excess contribution on 04/17/22 of $3000, by opening a new fund in an existing ROTH IRA. In this case, account balance immediately before making excess is zero. Correct? Then, your tool will not work? Or, are you saying the account balance is for the entire ROTH IRA account prior to this contribution in a new fund? That would give a wrong impression as far balance on the date of withdrawal is concerned since other funds in the ROTH IRA would impact this? Am I misunderstanding something? Lastly, do you need the balance excatly on 04/17/22? Or could it be 04/01/22? How would one find that? By calling Fidelity in my case? Thanks

[@TravisSickle]

This is the same in all scenarios prior to the tax filing deadline. All Roth IRAs are included in calculations. The calculations just helps calculate the net gain attributable to the contribution. Or loss if that’s the case too. Fixing it now in your case won’t have penalty but maybe a small amount of tax if you have a gain. Nothing to lose sleep over. Just as long as you complete the fix.

[@Ram-rn8yt]

@@TravisSickle Thanks Travis. No gains since markets went south

[@tamlengland]

What if I had a loss in the account last year over all in the roth. But I still gave enough funds to remove what I contributed because my husband and I made to much to contribute anything. I am still at a loss right now since the contribution last year. Do I need to include some where on an irs form with my taxes to show I did not make anything from the contribution?

[@tombeckyschares799]

One more question. Since the market went down since last year and most likely there will be a loss if one removes the entire contribution for a year, would it not be better to "absorb" that excess in the following year if you are eligible to absorb the total amount (not have another year of excess contributions) and pay the 6% penalty for the original year one made excess contributions? So instead of losing funds because the price per share dropped drastically from when you bought the shares, one can pay the penalty of 6% of $6000 which would be $360 which most likely is less than the loss one would have if one removed those excess contributions? Trying to figure out which way would result in a lesser loss of revenue, 1)A removal of the excess which would not incur the 6% penalty but the amount of shares would take a hit in a down market compared to when one originally invested, or 2) absorb the excess and pay the 6% penalty which is a fixed amount.

[@petecorron]

I am in the same boat here, and have the same concerns but I think I am going to pay the 6% instead of withdrawing

[@ez9541]

I was confused (still am?) during the video because I wasn't sure what you meant by "excess contribution." In your first two examples, you only contributed $500 during a whole calendar year. With a $6,000 contribution limit, how does a single $500 contribution count as "excess?" Did the person in this hypothetical scenario not have any taxable compensation for the year? The person in example #3 only had $5,000 of taxable compensation? Person in example #4 had zero taxable income again?

[@TravisSickle]

First you have to figure out how much you qualify for and then everything over that amount is excess. I didn't do that calculation in the video. I'm assuming you already know how much you were in excess. This is the net income attributable calculation which is the growth portion that is associated with the excess.

[@TravisSickle]

I posted 2 more videos today on the excess contribution. Also checkout the blog post in the description where I have a complete walkthrough on it.

[@ez9541]

@@TravisSickle thank you for the clarification (and the videos)!

[@tombeckyschares799]

You do a great job explaining but I still have a question when one makes monthly contributions. If one has an excess for the whole year one is making contributions, let's say the entire $6000 ($500 contribution per month), which month is considered the month of excess contribution, the January contribution or the December contribution? In your third example with the monthly investments, the excess began in November, so the November and December contributions were in excess and you used November's figures for the "account balance immediately before excess was made." In the case of the entire year being in excess, it would not make sense to use January account balance because it would be the same as the initial account balance. Since every monthly investment was in excess, would you just use the last investment in December to determine the account balance before the excess was made? Thank you for the clarification.

[@TravisSickle]

Dec

[@Zac-ys3hw]

Quick question - all of my 2022 contributions were in excess, and my first $100 contribution was made at the beginning of January, 2022. Afterwards, in late January, 2022, I made a prior-year contribution (for 2021). Do I include that prior-year contribution in my calculation for Adjusted Opening Balance, as it was made after my first contribution in excess?

[@TravisSickle]

right, on the worksheet line 4.

[@TravisSickle]

essentially, it's all the gains after the date of your first excecss contribution split up between the balance not in excess and the excess.

[@Zac-ys3hw]

@@TravisSickle perfect! That’s what I supposed, but since it’s such a specific question didn’t find a clear answer anywhere. Appreciate it! Your videos are super clear, and have helped a bunch in this stressful period !

[@drpaine7428]

Great Video, please confirm for me my scenario. I made a contribution to a Roth IRA that will need to be fixed, but before i realized it I rolled it over to another Roth IRA and also made a contribution there. In this bear market neither account made money. My assumption is that I need to first calculate with the worksheet how much should have been removed from the first Roth IRA and add that to the excess contribution in the 2nd Roth to then calculate the final amount needed to be withdrawn. Am I doing this correctly? Thanks !

[@TravisSickle]

No, add them up together.

[@drpaine7428]

@@TravisSickle The situation is I started with one Roth and rolled it over into another. Both had contributions. My problem arose when I figured out that this year my wife and I will go over the incoming limitation for Roth IRA contributions. I am going to send it to another company and have it recharacterized into a Traditional IRA. Then send it back as a Roth IRA rollover (backdoor). Calculating it for one isnt an issue but when you have two accounts and made contributions into both its a little messy.

[@drpaine7428]

When you say add them both up. Do you mean the overage?

[@lisapippinbt738]

Travis thank you so much you are amazing!

[@jenk5281]

Im in the 3rd example. I followed your NIA worksheet with an excess contribution of $6000 for 2021 and total contributions of $8000 (including the $2000 contributions made in 2022). In order to fund the withdrawal, I had to sell/sweep in to a Settlement fund after the excess contributions and before the excess removal. Does this need to be included in the NIA calculation?

[@TravisSickle]

Yes

[@dbest4755]

Travis, thanks for info. I must tell that had to take 2 Tylenol pills after watching this video. Why would anyone contribute more than limits set by IRS Duh! The IRS is about to hire 87,000 new agents. On Excess Roth IRA contribution, would making a smaller contribution following year fix problem ?

[@jamescrozier2312]

My case is a $7000.00 excess contributions in a Roth. A $10,000.00 conversion. A Starting balance of $50,000.00 a ending balance of 48,000.00. Dose the worksheet allow for the conversion?

[@TravisSickle]

Video example is playlist.

[@shrath1072]

Very Helpful video. thanks . I have contributed 16000$ this year for ROTH IRA. I did it to reduce the loss %. I understand that limit is 6000$. Can I roll over the excess amount to next year? If I decide to remove the excess amount, I will have to sell stocks at a high loss. What can I do in this case to minimize the losses? Thanks

[@TravisSickle]

You don’t have to sell. You can move positions or cash. It’s usually not advantageous to leave it but you can. It can be absorbed but only up to the limit for the year plus the 6% penalty. It can get complicated fast so be careful.

[@shrath1072]

@@TravisSickle Thank you very much. Here is what I am planning to do: I have contributed 10000$ excess. I will withdraw 4000$ before 31st December. Roll over 6000$ to next year and pay 6% excise tax.

[@shrath1072]

@@TravisSickle I didn't understood this- "You can move positions or cash". What do you mean by this?

[@wattsobx]

great video, but what is the date range? My scenario my MAGI was over so I could not contribute anything, however my auto contribtuion was still set. For tax year 2022, do I pull my opening balance form 1/1/2022 to today 3/26/23 since you can contribute up until tax day? Or is it 1/1/2022 ot 12/31/2022? Is it april to april, or Jan 1 to April? Last year I was find so im trying to figure out what my start date is was that March 2022 or Jan 1 2022? Hope this makes sense!

[@TravisSickle]

start date for the calculation is the excess contribution date.

[@tluong625]

This was super helpful. Thank you for your awesome breakdown with the examples!