Mistakenly funded my Roth fully and now need to pull it out? (IRA, dividend)

[4khansen]

We have been nicely rolling along funding our Roths fully for about 8 years until I realized today that in 2018 our stock club disbanded after 35 years and the large capital gains put us above the limit to fund a Roth at all. Reality set in when I saw our completed tax return for 2018 recently and knew I had funded the Roth fully in Jan 2018.

Have any of you needed to pull out funds before in this kind of situation? Did you get penalized or can you have a do-over???

[mark85]

I recently dealt with this.

You have until the due date of your 2018 return to withdraw the excess contributions plus earnings. If you've already filed your 2018 return, you can file an amended return. If you filed for an extension, you have until Oct. 15. You'll need to file form 5329.

[mshultz]

I had to do that in 2017, when I realized my retirement sick leave pay and deferred compensation withdrawal caused my income to be too high for a full Roth IRA contribution.

I ended up doing it manually. I withdrew $8000 in 2017, which I knew would be more than enough. A day or 2 later, I realized Vanguard had a form for this. It turned out I did not need Vanguard to do anything for me, and later called and told them not to bother.

Using Vanguard's historical data, I looked up the value of my Roth IRA the day before my 2017 contribution, and the day before my 2017 withdrawal, as stated by the IRS rules. The excess contribution gain is added to taxable income. This becomes a recursive function, as the additional income further reduces the allowable contribution. Just keep running the calculations (I used Excel) until you reach a stable value.

If your income is so great that no amount of IRA contribution is allowed, then you can skip the repeated calculations. Mine was not. I reported the amount of withdrawal beyond what was required as a Roth IRA withdrawal on my taxes. Because I qualified under the age and time rules, this amount was not taxable.

I filed my taxes, and included a letter of explanation, which appears to be required. I explained what I had done, and showed my work. My return was accepted without question, and life is good.

[4khansen]

Thanks... mine is going to be a full withdrawal and my money was put into a Roth stock account where I purchase my own stock so I have control of buying and selling within the Roth account. The problem is for me what is my original investment worth? The gain, or possibly a loss. I have no idea. I think I probably bought one stock at the time with the investment so I guess I will just have to see what that stock was and withdraw the amount close to my best guesstimate of it's worth? Do I have to look at the account's total current worth (all the various stocks as a whole) or just the stock price that I directly bought with that money at that time, will IRS go along with that? The overall account has an increase but that direct stock purchase may be down.


All of the stocks I buy are high quality dividend paying, which typically means that their per share value is fairly stable. I hope I can justify the least taxable event for me? Either the individual stock and its' dividends (increase or decrease) I purchased at the time or the overall gain of the entire account, including dividends.