How to handle excess Roth IRA contributions from 2021 with Vanguard?

So I just got notified that my $6000 Roth IRA contribution for 2021 was actually over the limit (ugh!). Apparently my income was higher than I expected that year and now I'm stuck with excess contributions. I'm trying to figure out the correct process to remove this money from my Vanguard account without making things worse. I started going through Vanguard's online process for removing excess contributions, but honestly, I'm second-guessing every step. The form asks for tax year of the excess, earnings attributable to the excess, and some other details I'm not 100% confident about. Has anyone gone through this process before? What's the right way to handle excess Roth IRA contributions from 2021 at this point? Am I going to get hit with a bunch of penalties? I really want to make sure I'm doing this correctly to avoid digging myself into a deeper hole with the IRS.

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19 comments

Liam O'Sullivan

•8M

This situation happens more often than you'd think! To properly handle excess Roth IRA contributions from 2021, you need to complete a "return of excess contribution" request with Vanguard. The process requires you to specify the tax year (2021), the exact amount of excess ($6000 in your case), and the earnings attributable to those excess contributions. Vanguard can help calculate the earnings portion, which is important because those earnings are taxable in the year you withdraw them. Since we're now past the tax filing deadline for 2021 (including extensions), you'll unfortunately face a 6% excise tax for each year the excess remained in your account. You'll need to file Form 5329 to report the excess contribution and pay the penalty.

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Liam O'Sullivan

•8M

Yes, the 6% excise tax applies for each year the excess contribution remains in the account. So in this case, if the excess hasn't been removed yet, they would owe 6% for 2021, another 6% for 2022, and another 6% for 2023. This is why it's important to address excess contributions as soon as possible. If they remove the excess now, they can stop the penalty from applying to 2024, but they'll still need to pay the penalties for the previous years by filing Form 5329 for each affected year.

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Giovanni Conti

•8M

After dealing with almost the exact same situation (excess Roth contribution through Vanguard), I found an incredible tool that made the whole process way easier. I used https://taxr.ai to help figure out exactly how to report the correction and calculate the penalties. Their system analyzed my specific situation and gave me step-by-step instructions for filling out the return of excess contribution form with Vanguard, plus it generated all the tax forms I needed to report the penalties for the previous years. Saved me hours of research and probably prevented me from making costly mistakes.

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Giovanni Conti

•8M

The tool has an earnings calculator that factors in your specific investment choices and performance periods. You input your contribution date and withdrawal date, and it uses market data to estimate the earnings specifically tied to that excess contribution. Super helpful when your brokerage puts the calculation burden on you. As for using Vanguard's customer service, you definitely can try that route. But in my experience, their reps often provide general guidance rather than personalized calculations. The tool was worth it because it handled both the calculations AND showed me exactly how to report everything on my tax forms, which Vanguard's reps weren't able to do as clearly.

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Fatima Al-Hashimi

•8M

Just wanted to update after using https://taxr.ai to handle my excess Roth IRA contribution situation. It was actually really impressive! The system guided me through exactly which forms I needed from Vanguard, showed me how to calculate the attributable earnings (which was the part I was stuck on), and even generated a completed Form 5329 for me to file for each affected year. The penalty wasn't as bad as I feared once I understood exactly what I needed to do. The whole process took about 30 minutes instead of the days I spent stressing and researching. I just submitted my return of excess contribution request to Vanguard yesterday following their instructions, and everything seems to be processing correctly.

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Dylan Campbell

•8M

I had a similar excess contribution issue last year, but spent WEEKS trying to get through to someone at the IRS who could confirm I was handling it correctly. Impossible to reach anyone! Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they actually got me connected to an IRS agent in under 20 minutes. The IRS agent walked me through the exact process for correcting excess contributions and filing the right forms for prior year penalties. Turned out I was making a mistake in how I was calculating the earnings portion. Having an actual IRS person confirm the correct procedure gave me peace of mind that I wasn't going to get audited over this.

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Dylan Campbell

•8M

It works by using an automated system that navigates the IRS phone tree and waits on hold for you. When they reach a live agent, you get a call connecting you directly to that agent. It's not cutting the line - they're essentially just doing the holding part for you. No, it's definitely not a scam. The service doesn't claim to have special access to the IRS - they just have an efficient system that dials and navigates the phone tree continuously until they get through, then they connect you. Think of it like having an assistant repeatedly calling for you until they get through, but it's automated. I was skeptical too until I tried it and was talking to an actual IRS agent about my excess contribution issue.

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Dmitry Kuznetsov

•8M

I have to apologize for calling Claimyr a scam. I was completely wrong. After seeing so many services claiming to help with IRS issues, I was deeply skeptical. But after struggling for days trying to get through to the IRS myself about my excess contribution situation, I decided to try https://claimyr.com out of desperation. Within 35 minutes, I was literally speaking with an IRS representative who was incredibly helpful. They confirmed exactly how to handle my excess contribution removal and what forms I needed to file for the prior year penalties. The agent even sent me to a specific department that deals with retirement account issues. I'm still shocked at how well it worked after spending hours hearing nothing but busy signals and disconnections when trying on my own.

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Ava Thompson

•8M

You're right about the terminology - I didn't use the correct term. What I meant was that you can apply the excess contribution toward a future year's contribution limit, but you're still liable for the 6% penalty until it's properly applied. So in your case, if you haven't contributed the max for 2024 yet, you could leave the money in there and count $6000 of it toward your 2024 contribution instead of physically removing it. You'd still owe the 6% penalty for 2021, 2022, and 2023, but it would save you from having to calculate earnings and going through the withdrawal process.

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