Removing Excess Contributions From A Roth IRA

[@zjz7525]

The most powerful explanations you can never find anywhere.

[@tommiller2443]

In the example at 8:19 - what if you had waited until February 2024? Are you penalized only 1 year at the 6% penalty, or an additional 6% since you moved into 2024?

[@willywidjaja532]

I have a question. Do I need file any IRS forms (5329) after removing the excess contribution from my roth IRA?

[@BreneWilson]

If you have a loss and take out the contribution before Oct due date do you still have to file an amended tax return? If so, do you report the loss?

[@madhavivyawahare4279]

When you just have to remove the contributions only and not the earnings. What code will you get on your 1099-R and will the full amount be taxed? I got a code J and Free Tax USA says that the whole amount is taxed at 34% (24% + 10% penalty) which is obviously wrong.

[@ft-pj8kr]

Since the current liquidity fund in the IRA account is insufficient, should I remove the partial excess by April 15th?

[@danrap-dj4en]

Excellent information here, Hope you still check the comments. I over contributed to my roth IRA for 2023 due to increased income. I determined the amount to remove and earnings. How do I report this on my 2023 income? I do not have a 1099-R at this point - might get one next year. Do I just enter it as a 1099-R and report the earnings? I read that earnings have to be reported in the tax year the overcontribution was made - 2023. I know I have to report this, just dont know how to report it correctly. Appreciate any help you can offer. Thank you sir

[@ninelr222]

This was the best explanation on this subject. Subscribed! I've been trying to solve this problem this entire week. I realized (a bit late) that I made an excess contribution of $1450 to my Roth IRA in 2021.I called Vanguard. They said to remove the excess and amend my 2021 taxes with Form 5329 to pay the 6% penalty. And that for 2023, I will receive form 1099R to show that the excess has been removed. That is what they said. And so, I downloaded two copies of Form 5329, for 2021 and 2022. To report excess and penalty for 2021, and penalty only for 2022 when doing taxes, next week. Now that I listened to you... I think there is another way... I did not contribute in 2022. Zero. I still have a right to contribute for 2022 (within my earning limits). So, I probably could leave $1450 in. It will be my contribution for 2022. And I only have to file form 5329 with 2021 amendment to pay %6. And no form is needed for 2022. Did I understood you correctly? Thank you!

[@greenbushfinancialgroup]

Thank you for subscribing to the channel. I believe you are correct, that you may be able to avoid the 6% penalty for 2022 since it was an excess contribution from the 2021 tax year, as long your income allows you to make a least a $1,450 contribution to your Roth IRA for 2022. I strongly recommend confirming this strategy with a tax professional before executing it. (Comment is for education. Not advice)

[@DragonBabyLove]

Hello. If I understand correctly...I over contribute for 2023 and had filed a tax extension. I can width draw contribution and NIA from my Roth, pay capital gain for my NIA amount (from form 1099-R?) but I don't need to file form 5329 because there is no penalty since I am correcting this before the extension deadline, Oct. 15, correct? Basically, I don't need to worry about form 5329?

[@datbio7302]

this is very nicely explained. Now I just have to pay the 6% penalty ..

[@datbio7302]

what is the code in box 7 of 1099-R for withdrawal of excess contribution? My 1099-R uses code J as "early withdrawal", i think it is wrong. Please advise.

[@straitjacketstudios]

7:55 Why am I paying a 10% penalty on the appropriate corrective action withdrawal when I completed it during the proper timeframe?

[@greenbushfinancialgroup]

The penalty is on just the earnings because those earning should have never happened with that Roth IRA.

[@LA2JERSEY]

So why would anyone make too much contribution to create headache then?

[@strangergranger10]

Should someone contribute to their Roth IRA at the beginning of the year or at the end of the year, without knowing their potential income within that same year??? To prevent paying penalty.

[@greenbushfinancialgroup]

If you are not sure what your income level will be for the year, and there is a risk that your income level could be above the Roth IRA contribution threshold, we typically advise clients to wait until after the end of the year to make the contribution since you have until April 15th to make the contribution for the previous tax year. (Comment is for education. Not advice)

[@dannyknuth3599]

Over contributed how ridiculous does that sound,you have been taught all your life to save and then the irs puts a cap on how much you can such bs

[@tracimorgan3695]

Great Video! thanks

[@rathor1072]

I have contributed 16000$ this year for ROTH IRA. I understand that limit is 6000$. I did it to reduce the loss %. 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

[@Alimboi]

Can I undo excess removal process? I should’ve been doing recharacterization, but this wasn’t explained when talking to Schwab

[@greenbushfinancialgroup]

That is really up to the custodian (Schwab in this case) to allow you to undo a previous transaction and pivot. (Comment is for education. Not advice)

[@k.v.u.2]

What if my Roth IRA has lost money but I don't want to calculate the losses and just remove the entire original contribution amount? For example, I have an excess contribution of $6k but it lost 10% and is now worth $5.4k. But instead of risking doing some kind of faulty math, I just remove the full $6k just to be safe. Is that okay or is that now overcorrecting and causing a different issue?

[@markbriggs7266]

I was looking for this question.

[@greenbushfinancialgroup]

I would be very hesitant to ignore calculating the loss. If you make a $6K contribution, the account drops by 50% during that year, so the $6K becomes $3K, and let’s say the full $6k is an excess contribution, if you ignore the loss and withdrawal the full $6k, technically you are withdrawing $3k of contribution and potentially earnings from a earlier tax year. The earnings withdrawal could be subject to taxes and penalties. If that was a brand new Roth, and the $6k was your only contribution, you would only have the option to withdrawal $3k, because there was no previous balance in the Roth IRA. If you want to give yourself some cushion in the loss calculation to make sure to take out enough to satisfy the excess, they may be ok, if you have been making contributions to your Roth IRA in the past, because Roth IRA’s allow you to distribute the contribution portion of the balance at any time without taxes or penalties. Just make note of this, if you ever decide to withdrawal the contribution portion out at anytime in the future. Once you reach age 59.5 and the Roth has existed for 5 years, it’s irrelevant because the whole account can be withdrawn tax free at the point. Disclosure: not tax advice. For tax advice, consult with s tax professional (Comment is for education. Not advice)

[@wattsobx]

im in the same boat what did you end up doing?

[@luisgonzalez1133]

My over contribution was made for 2020 tax year. I'm trying to withdraw it asap. Will this affect my current taxes (2022tax year) or do i have to pay the tax this year regardless

[@charlesclark2543]

Can I remove even more than the excess contribution on my withdrawal just to make sure its enough without penalty?

[@greenbushfinancialgroup]

See my response to the comment below yours. Someone asked the same excellent question. (Comment is for education. Not advice)

[@keithparker9503]

I contributed more to my Roth IRA than earned income for many years. I am estimating that I will probably lose about $15,000 to $20,0000 in excess contribution penalties. Opening up a Roth IRA is going to be my worst Financial mistake ever.

[@shigor]

I am in the same boat. I overcontributed for 4 years. I talked to Betterment but they can't answer my question how to fix/correct my contributions and even how to withdraw the excess. How did you fix the mess?