Trying to fix years old excess Roth contribution (6% excise already paid)

Submitted by Richard Diamond on Mon, 2023-12-04 19:33

I over contributed to my Roth IRA for the tax years of 2020 ($2300) and 2021 ($4010). I have already paid the 6% excise tax, for each of those years, as well as for 2022.

From my understanding, in order to no longer have this penalty, I need to withdraw a total of $6310. I would not need to account for gains (or losses) on those contributions since I’ve already paid the 6% fee. Please correct me if I’m wrong here.

I am unclear on the withdrawal process. My brokerage has a Re-characterization/Removal of Excess form, however in my situation I’m not sure I need to use that form, as the tax deadlines for the effected years have passed. I’m also not sure if there are any IRS specific forms I need to file (since the excise fees have already been paid).

From what I’ve gathered, it appears I can simply sell off $6310 worth of shares and remove those funds from the Roth. Then account for that in my tax software (HR Block), which has a step that asks if I have removed the excess.

Any help with this would be greatly appreciated.



Submitted by David Mertz on Mon, 2023-12-04 20:23

Correct.  So that the Roth IRA custodian does not mess it up, tell the Roth IRA custodian nothing about this being a distribution to correct an excess contribution.  Do *not* use the custodian’s recharacterization/return of excess form.  Simply obtain a *regular* distribution of $6,310.  It will be handled on your 2023 Form 5329 by the $6,310 being included on line 20.  If it’s not a qualified distribution, make sure that the $6,310 is part of your contribution basis included on line 22 of Form 8606.

Submitted by Richard Diamond on Mon, 2023-12-04 23:17

I do not believe this will be a qualified distribution. While I have had the Roth for over 5 years, I am not over 59 1/2. If I’m able to only distribute from my principal, would that affect anything? One other question. Does it matter which shares I sell to obtain the $6,310? Essentially, do I need to track down what I bought with my 2020 & 2021 contribution/excess. Thanks again for the help.

Submitted by Alan - IRA critic on Tue, 2023-12-05 00:17

  • You can sell anything you wish to fund the distribution. It does not matter how you invested those contributions.
  • Unless you have taken distributions that used up your regular Roth contribution basis since you made those contributions, the distribution of the excess amount will be funded with your regular Roth contribution basis, which you will show on line 22 of Form 8606. Therefore, the distribution of 6310 will be non taxable.  In other words, this distribution will be reported like any other non qualified Roth distribution, coming first from your regular Roth contribution basis (including the excess contributions), then from conversions, and last from earnings.
  • You should be keeping track of your regular Roth contribution basis as you go, adding to it when you make regular contributions (including excess contributions), and subtracting from it when you take distributions. If you took no distributions between the time you made the excess contributions and when you take the corrective distribution, your remaining regular contribution basis will be the same as it was prior to making the excess contributions. You will have made the excess contributions and then removed them.

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