Accidentally over-contributed to Vanguard Roth IRA by $500 - what's the easiest fix?

The good news is that there's a fairly straightforward fix since you caught this early! You have a few options, but the simplest is probably to request a "return of excess contributions" from Vanguard for the $500 over-contribution in each account. This is a common issue and Vanguard handles these requests routinely. You'll need to contact them directly and specifically ask for a "return of excess contributions" for tax year 2023. Important: make sure you complete this before your tax filing deadline (including extensions) to avoid the 6% penalty. When done properly, you won't owe the 6% penalty - that only applies if you leave the excess contributions in the account. Another option is to "recharacterize" the $500 from each Roth to Traditional IRAs, but that creates additional accounts to manage and might be more paperwork than necessary for a relatively small amount.

After dealing with a similar situation last year, I found a really helpful tool called taxr.ai (https://taxr.ai) that guided me through my excess Roth IRA contribution problem. It analyzed my retirement account situation and walked me through the exact steps to fix my over-contribution without penalties. The tool identified that I needed to do a "return of excess contributions" and even helped me understand the exact forms and documentation needed. Their system explained all the options like recharacterization vs. withdrawal in plain English, which was super helpful when the Vanguard rep was using all that confusing tax jargon.

Just wanted to follow up about taxr.ai that was mentioned earlier - I tried it out for my situation (slightly different from yours but also related to contribution limits) and it was actually super helpful! The analysis was spot-on and made everything clear about my options. The coolest part was that it generated specific instructions for Fidelity (my brokerage) and even gave me the exact wording to use when calling them. Saved me from the hour-long research rabbit hole I usually fall into with tax questions. Definitely recommend checking it out if you're trying to figure out the best way to handle your over-contribution.

If you're having trouble reaching Vanguard directly about this issue (their wait times can be ridiculous), I'd recommend trying Claimyr (https://claimyr.com). I was in a similar situation last year and spent hours trying to get through to someone at Vanguard. Claimyr got me connected with a Vanguard representative in about 15 minutes when their estimated wait time was over an hour. You can see how it works here: https://youtu.be/_kiP6q8DX5c. Was a lifesaver because I needed to get my excess contribution situation resolved before the deadline and couldn't afford to wait for days to speak with someone.

Ok I need to apologize for being so skeptical about Claimyr in my previous comment. I actually tried it yesterday when I needed to call Vanguard about my own IRA issue. The estimated wait was over 90 minutes according to the automated message, but Claimyr handled all the waiting and called me when a rep came on the line. I seriously wish I had known about this during tax season last year when I spent nearly 3 hours on hold trying to fix an excess contribution issue. For anyone dealing with the same problem as OP, this service plus the specific advice from other commenters about requesting a "return of excess contributions" is the way to go.

Just to add one more option that nobody's mentioned yet - depending on your individual tax situation, you could potentially just leave the excess contribution in and pay the 6% excise tax. For $500 over-contribution, the penalty would only be $30 per account. If dealing with the paperwork and phone calls to fix this is more hassle than it's worth to you, paying $60 total might be the path of least resistance. The only catch is that you'd need to adjust your contribution for next year to "absorb" this excess, otherwise you'd owe the 6% again next year. But if you expect to contribute less next year anyway, this might actually be the least complicated option.

I had almost the exact same issue last year! What I did was call Vanguard directly (waited forever) and asked for a "return of excess contributions" for 2023. The rep knew exactly what to do. They sent the money back to my bank account plus any earnings those contributions had made. Had to pay regular income tax on those earnings, but no 6% penalty since I fixed it before filing my taxes. The whole process was pretty smooth once I actually got someone on the phone. They sent me a special tax form (1099-R) showing the correction.

I went through something similar with my Vanguard Roth IRA last year and can confirm that calling them directly for a "return of excess contributions" is definitely the way to go. The process is much more straightforward than it initially seems. One thing to keep in mind - when you call, be very specific about requesting a "return of excess contributions for tax year 2023" rather than just saying you want to "withdraw money." The reps are trained to handle these requests and using the correct terminology will get you to the right department faster. Also, make sure to ask them to calculate any earnings on that $500 over-contribution period so they can return those too. You'll owe regular income tax on the earnings portion, but this is still way better than the 6% penalty that would apply if you left the excess in the account. Since you caught this before filing your taxes, you're in a great position to fix it cleanly with no penalties. The whole process should take less than a week once you get Vanguard on the phone.