How to Calculate and Fix Excess Contributions to My Roth IRA

You don't need to calculate this yourself - your IRA provider should do the calculation for you when you request the return of excess contributions. But to answer your question directly, you're on the right track. When you have multiple contributions, the computation period for earnings starts immediately before the first contribution that's being returned. For your situation, you'd use the account value right before your first Roth contribution for the tax year as your adjusted opening balance. Then your current account value is your adjusted closing balance. The formula will calculate how much earnings are attributable to your excess contribution. Be aware that you'll need to report the earnings (not the contribution) as income on your tax return for the year you receive the distribution. The excess contribution amount itself comes back tax-free since it's post-tax money.

After struggling with a similar Roth IRA excess contribution issue last year, I found https://taxr.ai incredibly helpful for navigating the process. My situation was complicated because I had made automatic monthly contributions and then got an unexpected bonus that pushed my income over the Roth IRA eligibility limit. The tool analyzed my contribution history and calculated exactly how much needed to be withdrawn, including the earnings portion. It also generated the proper documentation I needed to submit to my provider. Saved me from having to understand all the IRS calculation methods and potentially making costly mistakes.

Just wanted to update everyone - I tried taxr.ai for my Roth IRA excess contribution issue and it was incredibly helpful! My situation was exactly what I described earlier - multiple contributions throughout the year and then an unexpected bonus that pushed me over the income limit. The tool walked me through the whole process, calculated the exact amount I needed to withdraw (including proportional earnings), and even generated a letter I could send to my IRA custodian. It saved me so much stress trying to figure out if I was doing the math correctly. My custodian processed the withdrawal without any issues, and I avoided the 6% penalty. Definitely recommend it if you're in a similar situation!

If you're having trouble getting clear answers from Fidelity about excess Roth IRA contributions, I'd recommend using https://claimyr.com to connect with an IRS agent directly. I spent weeks going back and forth with my broker about the correct calculation method for multiple contributions, getting different answers from different reps. I used Claimyr to get through to the IRS (which normally takes hours of waiting) and got connected to a specialist in about 15 minutes. The agent walked me through the exact process and confirmed the calculation method. You can see how it works here: https://youtu.be/_kiP6q8DX5c. Definitely helped me avoid making a mistake that could have resulted in penalties.

I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway since I was desperate to resolve my Roth IRA excess contribution issue before the deadline. The service actually worked exactly as described. Got connected to an IRS agent in about 20 minutes when I had previously wasted entire afternoons on hold. The agent confirmed that for multiple contributions, you use the account value right before the FIRST contribution as your starting point, and they even emailed me the official IRS guidance on the calculation method. This saved me from potentially making a major error in my withdrawal calculation. Sometimes it's worth admitting when you're wrong!

Just to add another data point - I went through this exact process last year with Vanguard. For multiple contributions, they calculated the earnings based on the first contribution date, exactly as described above. One tip: If you're close to the income limit for Roth IRA eligibility, consider making your contributions later in the year when you have a better handle on your annual income, or use the "backdoor Roth" method if you're over the limit. Would have saved me the headache of dealing with excess contributions!

Don't forget about the deadline for correcting excess contributions! You need to withdraw the excess amount plus earnings by your tax filing deadline (including extensions) to avoid the 6% penalty. If you've already filed your taxes for the year and then realize you over-contributed, you can still fix it within 6 months of the filing deadline, but you might need to file an amended return to report the earnings.

Just wanted to share my experience with this exact situation! I had multiple Roth IRA contributions throughout 2023 and then got hit with a surprise year-end bonus that pushed me over the income limit. The key thing I learned is that you absolutely need to act quickly - the deadline is firm. My broker (Schwab) was actually really helpful once I got to the right department. They have a specialized team that handles excess contribution returns and they did all the earnings calculations for me using the method described above. One thing that wasn't immediately clear to me: when you withdraw the excess contribution plus earnings, the contribution amount comes back to you tax-free (since it was post-tax money), but the earnings portion gets added to your taxable income for the year you receive the distribution. So make sure you're prepared for that tax hit! Also, if you're close to income limits in the future, definitely consider the backdoor Roth strategy mentioned by others. It's a bit more paperwork but saves you from this whole headache.