Roth IRA Excess Contribution
Hello Terry!
I’m a first time questioner, but my Stepdad talks very highly of you so I though I would give it a shot!
I seem to have run into an issue with my Roth IRA with an Excess Contribution. I was beginning my taxes via TurboTax and while filling out my Roth IRA contribution in the Deductions & Credits section; I discovered I made an excess contribution for the year 2021 – eeek! The cause I later discovered was due to the fact that in 2021 I was unemployed and had no earned income, but on January 11th, 2022 I contributed $2,000 to my Roth IRA for the 2021 year. I know this is my fault for not reading the guidelines thoroughly, however, being that I file early, I knew I’d be able to take some sort of action to correct this. So, I reached out to my broker, TD Ameritrade, to see if they would be able to change the contribution year from 2021 to 2022 (being that I hope to find employment this year in 2022). They told me that shouldn’t be a problem and that I would need to fill out a Removal of Excess Form to proceed with the change.
My questions are, if I do fill out this Removal of Excess form and return it to TD Ameritrade, would they change the contribution year and then in turn, would this NOT affect my 2021 Tax Filing with a penalty fee? (since I did not complete my TurboTax filing once I discovered the excess contribution issue). Also, within the Removal of Excess Form, it asks in the Tax Withholding Election section if I would like Federal and State Income Tax withheld. I believe the IRS generally doesn’t require Federal tax withheld on a Roth IRA, but was curious in regards to State (California)? Plainly, as I am just trying to change the contribution year from 2021 to 2022, and have yet to file my 2021 taxes, would I be facing any sort of penalty if I correct this year change before I finish my taxes?
Apologies if this is lengthy and wordy, I hope the above makes sense and that you may be able to shine some light on my situation. Appreciate the help, thanks so much!
Terry Says
Well, I’m glad you asked before you filed. Get going on the removal with TD Ameritrade, your custodian. Since it is so close to the start of the year, and you haven’t filed, it likely won’t be subject to the 6% penalty on excess contributions. And since you didn’t have any earned income last year, there is no reason to file a tax return — unless you need to report income from unemployment. Ask your tax preparer.
And for the complete rules on excess contributions and penalties, go to this link.
I’m glad you’re rolling the money to a 2022 contribution, because with all the jobs open these days, surely you’ll find a way to earn money and justify this 2022 contribution!
