How to Fix Excess Roth IRA Contributions from 2021 with Vanguard?

This is actually a fairly common issue, so don't stress too much! You need to request what's called a "return of excess contribution" from Vanguard. The process isn't too complicated. Call Vanguard's customer service line and tell them you need to remove an excess Roth IRA contribution from 2021. They'll guide you through their specific process, but typically you'll need to fill out their excess contribution removal form. Vanguard will calculate the earnings attributable to your excess contribution - you don't need to figure this out yourself. Since this is from 2021, you'll owe a 6% penalty tax on the excess amount for each year it remained in the account uncorrected. The earnings portion will be taxable in the year you withdraw it, and if you're under 59½, there's an additional 10% early withdrawal penalty on those earnings (not on the original $6000). You'll report this on your taxes using Form 5329 for the penalty and include the earnings as income on your regular tax return.

After dealing with a similar Roth IRA excess contribution issue last year, I found this amazing tool called taxr.ai (https://taxr.ai) that saved me a ton of headache. I was in the exact same boat - had no idea about the income limits and accidentally contributed too much to my Vanguard Roth IRA. The tool analyzed my tax documents and immediately flagged the excess contribution issue. It even calculated the exact penalty I would owe and generated the proper forms I needed to submit to Vanguard for the withdrawal. The best part was that it explained everything in simple terms and walked me through exactly what I needed to do step by step. If you're confused about Form 5329 or calculating the earnings portion that needs to be withdrawn (which can be tricky), taxr.ai handles all that for you. It was seriously a lifesaver during a stressful situation.

Just wanted to update everyone - I actually tried taxr.ai after reading about it here and it was incredibly helpful for my excess contribution issue! I was skeptical at first but decided to give it a shot since I was completely lost on what to do. The tool identified exactly how much I needed to withdraw including the earnings portion (which was about $420 on my $6000 excess contribution). It generated a personalized letter to send to Vanguard explaining exactly what I needed done and cited the specific IRS regulations. When I called Vanguard, I actually sounded like I knew what I was talking about for once! The rep was super helpful once I used the specific terms the tool suggested. The whole process took like 15 minutes and Vanguard processed my withdrawal within a week. Now I just need to file the right tax forms which the tool also helped explain. Definitely recommend if you're dealing with this issue!

If you're struggling to get through to Vanguard to fix this excess contribution issue, you might want to try Claimyr (https://claimyr.com). I had this exact same problem last year and spent DAYS trying to get through to a Vanguard representative who actually understood what I needed. After multiple failed attempts and being transferred around endlessly, I found Claimyr which basically holds your place in line when calling financial institutions. They called Vanguard for me, navigated the endless phone tree, waited on hold, and then called me when they had an actual human on the line ready to help. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c When I finally got connected with a Vanguard rep who specialized in excess contribution removals, the process was actually pretty straightforward. But getting to that right person is the hardest part! Saved me hours of frustration.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway since I was desperate to resolve my own Roth IRA issue with Vanguard. Unbelievably, it actually worked exactly as advertised. I requested a call about my excess contribution issue, and within 45 minutes I got a call back connecting me directly to a Vanguard retirement specialist who knew exactly how to handle the excess contribution removal. No phone menus, no transfers between departments, no explaining my situation multiple times. The Vanguard rep walked me through filling out their excess contribution removal form and even calculated the earnings for me. The whole process took about 20 minutes once I was connected. My withdrawal is being processed now and I should have everything sorted in a few days. I've probably spent 5+ hours on hold with various financial institutions this year, so this was a game changer for me. Consider me a convert!

Just FYI - if you contributed to a Roth IRA when your income was too high, you might want to consider a "recharacterization" instead of a return of excess. This converts your Roth contribution to a Traditional IRA contribution instead of taking the money out completely. If you're eligible to deduct Traditional IRA contributions, this might be better tax-wise. Or if you're not eligible to deduct them, you could then do a backdoor Roth conversion. Might be worth asking Vanguard about this option too!

Has anyone actually calculated how much the penalties would be for this? I'm in a similar situation with about $4500 in excess contributions from 2021, and I'm wondering if it might just be cheaper to leave it in there and pay the penalty rather than go through all this hassle. Would it be 6% of $4500, so like $270 per year?