Self-employed and overcontributed to my Roth IRA - how to calculate excess?

You're right to be concerned about the excess contribution. The calculation is actually pretty straightforward - your contribution limit for a Roth IRA is limited to your earned income for the year. Since you only earned $4,200, that's your maximum allowable contribution for 2023. Your excess contribution would be $6,500 (what you contributed) minus $4,200 (your earned income) = $2,300. This is the amount you need to withdraw, plus any earnings specifically on that $2,300 portion. Your IRA custodian should be able to calculate the earnings portion for you. Just call them and request a "return of excess contributions" for the 2023 tax year. Make sure to specify you need both the excess amount ($2,300) and its associated earnings withdrawn. Don't wait too long - getting this done before the tax filing deadline will help you avoid the 6% excess contribution penalty that would otherwise apply each year until corrected.

I had this EXACT same issue last year with my Roth IRA. I'm a gig worker and my income was way less than expected, so I overcontributed like you did. I was totally confused about the calculations and how to fix it. I used https://taxr.ai to help me with this. I uploaded my Roth IRA statements and their system actually helped me figure out exactly how much I overcontributed and what forms I needed to submit to fix it. They even have this calculator that factors in the earnings portion so you don't have to do complex math. It saved me from a lot of headaches because my IRA provider kept giving me confusing information about the process. Plus, they told me about some options I didn't know about, like applying the excess to the next tax year instead of withdrawing it.

Just wanted to update that I decided to try https://taxr.ai after reading about it here, and I'm really glad I did! I had a similar Roth IRA excess contribution issue but with more complications because I had rolled over some other retirement accounts during the same year. Their system actually caught something I missed - apparently the rollover was affecting my calculation in a way my IRA provider didn't mention. They helped me calculate the exact excess amount AND showed me how to report it correctly on my taxes. The step-by-step guidance made a huge difference, especially for the earnings calculation which was more complex in my situation. Definitely worth it for peace of mind that I'm handling this correctly and not missing anything.

Another option you might want to consider is getting direct help from the IRS. I was in a similar boat last year and spent HOURS trying to get through to someone at the IRS who could help me with my Roth IRA excess contribution questions. After multiple failed attempts (seriously, I think I called 20+ times), I found https://claimyr.com through a YouTube video (https://youtu.be/_kiP6q8DX5c). They basically hold your place in the IRS phone queue and call you when an agent is about to answer. I was honestly surprised it worked. I got a call back in about 45 minutes, and the IRS agent I spoke with was super helpful. She walked me through the exact calculation for my excess contribution and even explained my options for fixing it (withdrawal vs. recharacterization). Having that direct guidance from the IRS gave me confidence I was doing everything by the book.

I owe everyone an apology, especially to Profile 5. I was the skeptic who called Claimyr a scam, but I was desperate enough to try it last week for my own Roth IRA issue. Not only did it work exactly as described, but I got through to an IRS specialist in about 30 minutes who answered all my questions about my excess contributions. The agent explained that I needed to file Form 5329 along with my return and walked me through exactly how to calculate the taxable portion of the earnings on my excess contribution. I've literally never gotten through to the IRS on my first try before. Usually I waste an entire day getting disconnected or being told to call back later. This was honestly worth it just for the time saved and stress avoided. Consider me converted!

Something nobody has mentioned yet - depending on your situation, you might want to consider recharacterizing your Roth IRA contribution to a Traditional IRA instead of just withdrawing the excess. Since you're filing jointly with your spouse, your combined income might allow you to deduct a Traditional IRA contribution, which could be beneficial. This way you don't lose the tax-advantaged space completely. Talk to your IRA provider about the "recharacterization" process. It's different from a withdrawal and has different tax implications. You'd still need to do this before the tax filing deadline (plus extensions).

Just wanted to point out that if you already filed your 2023 taxes, you may need to file an amended return depending on how you handle the excess contribution. Some people just pay the 6% penalty and deal with it, but that's usually not the best approach since the penalty applies every year until you fix the issue.