Overcontribution on Roth IRA - need help to fix

2 Replies

Hello all!

So somehow, I didn’t notice my AGI would be above the IRS Roth limit (198,000 AGI) and I had contributed 6000 into my Roth in 2020.

So my tax program is telling me I have to pull 1250$ + any earning made on it. And looks like I’ll be taxed on the earning made.

What strategy would you have in my situation ?

- remove the excess and earning and pay 10% earning ?

- if not, is it possible to make the excess and earning part of 2021 contribution ?

- invest in some sort of tax advantage account before April 15? (I already maxed out my HSA, my wife has some room I think).

Any other idea ??

Thank you all,

Charles

Well, since you make money, don't cheap out - Hire a good CPA or tax professional, if for nothing more than a liability shield.

You'll probably need to go back and file an adjusted return for that tax year.  Hire someone that knows what they're doing it'll save you a lot.

This really isn't a big deal if you fix it correctly. It happens all the time.  I would recommend calling the investment company on the phone and tell them you need to do a Return of Excess because your income was over the AGI limit.  You're taxed on the earnings but there isn't a penalty. 

Next year, if you're over the limit, you will want to look into doing a backdoor Roth IRA contribution or if you are self-employed you may be able to do Roth contributions in a Solo 401(k). Also, you can look at doing Mega-Backdoor Roth contributions if you're self employed or your employer 401(k) is set up for it.

The Mad Fientist has some good posts to explain it for you. Be careful though; it is pretty easy to screw up. If you're uncomfortable doing it yourself you can hire a professional to do it for you.

Disclaimer: I am a Financial Advisor but I am not your Financial Advisor. I don't know your specific situation and it is not my fault if you screw any of this up.