How to Remove Excess Roth IRA Contributions Without Paying the 6% IRS Penalty
How to Remove Excess Roth IRA Contributions and fix it before the IRS Penalty: Roth IRA contributions are subject to income limits and if your income ends up being too high for the year, you may accidentally make an excess contribution without realizing it. In this video, our team at Greenbush Financial Group walks through what happens when you contribute to a Roth IRA but later discover you exceeded the IRS income thresholds (such as the 2026 phase-out beginning around $153,000 for single filers and $252,000 for married filing jointly). We explain: • How excess Roth IRA contributions commonly happen (bonuses, capital gains, late-year income changes) • The process for removing an excess contribution before your tax filing deadline • Why you may need to withdraw both the contribution and the earnings • When taxes and the 10% early withdrawal penalty apply • What changes if you discover the mistake after filing your taxes • How the 6% IRS excise penalty works for prior-year excess contributions • Situations where intentionally waiting to correct the mistake could allow you to keep the earnings • When a recharacterization to a Traditional IRA may be an option • Why excess contributions must be removed from the specific Roth IRA where they were made • How the IRS uses a LIFO (last-in, first-out) method when correcting monthly contributions Correcting an excess Roth IRA contribution is not always as simple as taking the money back out and depending on timing, the tax impact can vary significantly. Our analysis at Greenbush Financial Group outlines the available correction methods so you can determine whether it makes more sense to remove the funds before your tax deadline or after extension and pay the 6% penalty instead. 00:00 Removing Excess Roth IRA Contributions 01:23 Removing Excess Contributions BEFORE You File Taxes 02:17 Removing Excess Contributions AFTER You File Contributions 03:23 Excise Penalty 04:53 Important Tax Strategy to Note 08:00 Recharacterize Contributions 08:16 FAQs
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