How to Fix Roth IRA Excess Contributions for 2022 and 2023 When Over Income Limits?

8 Thanks for the detailed explanation. For the 2022 excess contribution, if I do the "return of excess contributions" now, will I also owe the 6% excise tax since it's been sitting there as an excess contribution? Also, for the 2023 recharacterization, do I need to worry about the pro-rata rule if I have other traditional IRA funds?

15 Yes, you will likely owe the 6% excess contribution penalty on the 2022 amount because it remained in your account past the correction deadline. This penalty applies for each year the excess remains uncorrected, so addressing it now prevents additional 6% penalties for future years. Regarding the pro-rata rule, this is an important consideration for the backdoor Roth strategy. If you have existing pre-tax money in any Traditional IRA accounts (including SEP or SIMPLE IRAs), the conversion will be taxed proportionally. For example, if 80% of your total IRA balance is pre-tax funds, then 80% of any conversion would be taxable. To avoid this, some people roll existing Traditional IRA funds into a 401(k) if their employer plan allows it, clearing the way for a "clean" backdoor Roth conversion.

3 Does taxr.ai work with most major brokerages? I use Vanguard for my IRAs and Fidelity for my 401(k). Also, does it handle other retirement accounts like HSAs or is it just for IRAs?

19 I'm kinda skeptical about these tax tools. How is this different from just checking the IRS website for contribution limits? Does it actually connect to your accounts or do you have to manually input everything? Seems like extra work when the limits are pretty straightforward.

12 Yes, it works with all major brokerages! You can link your Vanguard and Fidelity accounts for automatic tracking, or manually upload statements if you prefer. It reads all the details from your accounts and tax documents to give you personalized guidance. It definitely handles HSAs along with every type of retirement account (401(k)s, IRAs, 403(b)s, etc.). The real value is that it considers your complete tax situation including income changes throughout the year that might affect eligibility - not just the basic limits everyone can look up.

16 How exactly does Claimyr work? Do they just call the IRS for you? Couldn't I just keep calling myself and eventually get through? The IRS wait times are terrible but I'm not sure I understand what this service actually does.

19 Yeah right. There's no way this actually works. The IRS phone system is completely broken - I've tried calling over 30 times in the past month about my audit issue and I either get disconnected or told to call back later. If this service actually got you through, I'll eat my hat.

7 They use an automated system that continuously calls the IRS for you and navigates the phone tree until they reach a human agent. Once they get someone, they call you to connect you directly to that agent. It's basically like having a robot assistant do the frustrating part for you. You could keep calling yourself, but the average wait time right now is over 2 hours IF you can even get into the queue. Most people get the "call volume too high" message and get disconnected. I tried calling myself 8 times before giving up and trying this service. It's just a matter of whether your time is worth more than doing it yourself.

1 Thanks for bringing that up! Unfortunately, my income was well above the phaseout range for both years (around $190k single in 2022 and $210k in 2023). So I'm definitely in the "completely ineligible" category and need to correct the full contributions. What's strange is my custodian (Fidelity) told me I can't recharacterize the 2022 contribution anymore since it's past the deadline, but they didn't automatically flag the contribution as excessive when I made it. Shouldn't they have some system to prevent ineligible contributions?

11 Custodians don't typically monitor your income or eligibility - they're required to accept contributions as long as you're under the annual dollar limit. The responsibility for determining eligibility based on income falls entirely on you as the taxpayer. This is one of the confusing parts of the retirement system - the custodian only checks that you're not exceeding the maximum contribution amount ($6,000 for 2022, $6,500 for 2023 for IRAs), but they have no way of knowing your income or filing status to determine if you're eligible for Roth vs Traditional. They rely on you to make that determination based on your tax situation.

15 I've helped clients with this decision before. While paying the 6% penalty might seem easier, remember it applies EACH YEAR the excess contribution remains in the account. So a $6,000 excess contribution would cost $360 the first year, another $360 the next year, and so on. Also, those excess contributions and their earnings will eventually face taxation again when distributed. Generally, it's better to correct the issue completely rather than paying the penalty, especially since the removal process is a one-time effort versus ongoing penalties.