Removing Roth Contribution before year end

Submitted by n2b on Fri, 2019-12-27 18:23

I made a Roth contribution up to my maximum allowed ($7000) in 2019. I now realize that I need the money and would like to cancel the contribution and put it back in a regular account before the end of 2019 for my other anticipated expenses. Is that allowed without declaring it as a distribution. I would like to avoid the related complications during tax time since I am under 59 years old.
Thanks for your opinion



Submitted by Alan - IRA critic on Fri, 2019-12-27 19:38

  • If you request a return of your 2019 contribution, you will also receive allocated earnings, which may be quite good if you are in stocks. You would owe tax and penalty on those earnings. To avoid that just request a distribution of 7000 flat without mention of it being your 2019 contribution. You will receive 7000 and will have to complete Form 8606 to show what your total Roth regular contribution balance (basis) was, but the distribution will be non taxable whether you have a large balance or just the 7000 you contributed this year.  Therefore, unless you have a loss on your contribution this will save you tax and penalty costs.
  • As for complications, you need an 8606 when just requesting 7000 flat, and you don’t if you have the 2019 contribution returned specifically with earnings. But the 8606 is easy unless you have no idea what your total regular Roth contribution basis actually is  since you did not track it from your very first Roth contribution. If you have to do all this research, then the 8606 will not be easy.
  • As you can see there are different approaches depending on whether you have a gain or loss on your 2019 contribution and whether you already know your total Roth basis or not. If you withdraw the 7000 flat, any gains get to stay in your Roth.
  • Above comments assume that your 7000 contribution is legal, not an excess contribution, and you simply want 7000 back from the Roth because you need the money.

Add new comment

Log in or register to post comments