Contributed Too Much to My Vanguard Roth IRA - Need Help Fixing Excess Contributions!

Thanks for the quick response! Is there a time limit on when I can fix this? I'm worried since some of these contributions were from 5+ years ago. Also, what exactly is a backdoor Roth conversion? I keep hearing about it but don't really understand how it works.

Unfortunately, there are time limitations for recharacterizations. The deadline is typically your tax filing deadline plus extensions for that contribution year. Since we're talking about 2017-2019 contributions, you're past that window, so you'll likely need to remove the excess contributions and pay the 6% excise tax for each year they remained in the account. A backdoor Roth conversion is a two-step process where you first contribute to a Traditional IRA (which has no income limits for contributions, though deductibility may be limited), then convert those funds to a Roth IRA. It's a legal workaround for high-income earners who exceed Roth IRA income limits. For future contributions, this might be your best approach.

How exactly does that work? Did you just upload your statements or something? I'm always nervous about sharing financial documents online.

Does it actually help with the IRS forms? Because filling out Form 5329 for multiple years sounds like a total nightmare. And did it tell you how to handle the tax implications of removing the money?

You upload PDFs of your statements and it analyzes them to calculate everything. They use bank-level encryption and don't store your documents after processing, so I felt pretty comfortable with it. Yes, it helps with all the forms! It calculated the exact excess amount for each year (including earnings), filled in the Form 5329 for each applicable year, and even generated a letter to Vanguard with the specific request for removing excess contributions. It also explained exactly how the withdrawal would be taxed - the contributions come out tax-free but the earnings are taxable plus a 10% early withdrawal penalty if you're under 59½.

Do they just keep calling for you or something? I don't understand how this would even work with the IRS phone system.

This sounds like BS honestly. Nothing gets you through to the IRS faster. I've tried everything and still waited hours. How could this possibly work?

They have an automated system that navigates the IRS phone tree and waits on hold for you. When an agent picks up, you get a call connecting you directly to them. It's not magic, just smart automation that saves you from having to sit on hold yourself. No, it's definitely real. I was super skeptical too - I've spent countless hours on hold with the IRS before. The difference is their system can make hundreds of calls simultaneously and grab an agent as soon as one becomes available. They just have way more resources than an individual constantly redialing.

I'm wondering this too! My situation was being over the income limit, but I've stayed within the annual contribution caps.

The correction process is essentially the same regardless of why the contribution was considered excessive. Whether you exceeded the annual dollar limit or were over the income threshold, the IRS treats it as an excess contribution. The 6% excise tax applies to both situations, and the options for correcting it are identical: remove the excess (plus earnings) or recharacterize to a Traditional IRA if you're still within the timeframe to do so. The only practical difference might be in calculating exactly how much was excessive - if you're over the income limit, the entire contribution is excessive, whereas if you exceeded the annual cap, only the amount above the limit is considered excess.

This! So many people don't realize there's a phaseout range and just assume it's all-or-nothing. Definitely worth checking before you go through the hassle of removing contributions that might actually be partially valid.

Omg thank you for pointing this out! I just checked my 2017 tax return and my MAGI was around $129,000 which means I was in the phaseout range. So I would have been eligible for a partial contribution. Does that change how I handle this situation? Do I only need to remove part of each year's contribution?

Yes, this changes everything for those years! If you were in the phaseout range, you need to calculate your maximum allowable contribution for each year based on your specific MAGI. The formula is a bit complex, but basically you take the maximum contribution limit minus a reduction based on how far into the phaseout range you were. For 2017 with a $129,000 MAGI, you'd calculate: $5,500 - (($129,000 - $118,000) / ($133,000 - $118,000)) × $5,500. That works out to about $1,433 you were allowed to contribute. So you'd only need to remove the excess amount above that ($4,067) rather than the full $5,500. You'll need to do this calculation for each year you were in the phaseout range. This could save you significant penalties and taxes on the removal of contributions that were actually legitimate!