After having decided to remove my Roth IRA excess contribution, I went through the process at Vanguard for making it happen.
More posts in this series:
- The Roth IRA danger zone (part 1): What to do when you almost make too much to contribute
- The Roth IRA danger zone (part 2): What to do if you contributed too much
- The Roth IRA danger zone (part 3): How I resolved an excess contribution
- The Roth IRA danger zone (part 4): How to remove an excess contribution at Vanguard
I made an excess contribution to my Roth IRA last year. I didn’t plan on it, but my tax situation changed unexpectedly, and at that point, it had already happened.
And now, before I file my taxes, I decided that I was going to go through the process of withdrawing that excess contribution
My Roth IRA is with Vanguard, so here are the steps I took to go through the process. It’s not a complex one, but it is rather long and involved, so if you have to go through the same thing, feel free to use this as a handy reference.
Table of Contents
In short, you need to tell Vanguard how much money you want to work with, and what you want to do with it (withdraw or recharacterize).
More to the point, they link to the actual form you can use to perform this process. It used to be that you had to fill out a form and mail it in, but in the past year or so, they have pulled a TurboTax and created a wizard which asks you questions and then fills out the form for you.
(The link is found on the above page, and I’m not including it here, mainly because it’s unclear whether it’s a unique link for me or a universal one.)
So I went through the process.
When you first initiate the process, you’ll get an information screen about the new online form submission process. Click I Accept and Continue.
You will be asked what type of account to manage. In this case, it’s a Roth IRA. (After all of these pages, click Continue.)
On the next screen, you choose whether you want to withdraw or recharacterize. If you’re like me, select Remove a contribution from the account as an excess contribution.
You’ll see a bunch of information about this process. Select Yes to continue.
You’ll next be asked about whether you’re the owner of the IRA. (I’m not sure what happens if you’re not.)
Select the account that the excess contribution happened in. For most people, I think there will only be one option here.
On the next screen, enter the amount you’d like to withdraw, and from what tax year. This screen has some helpful information about the process too.
The next question is whether the excess contribution happened at Vanguard. To be honest, I’m not sure of the implications of this, but for me, the answer was Yes.
You can move the money to a nonretirement account at Vanguard, or you can have them mail you a check. I chose Option B, a check. Also, you probably need to remove the money from some fund, so select the fund(s) that you’d like to withdraw from, and how much from each of them.
This next screen sets up a backup source, and is only important if the amount you’re withdrawing may be greater than what’s in your fund. It’s probably not that crucial.
Okay, the next one stumped me for a bit. It concerns whether to withhold income tax from the earnings on the withdrawal. I guess the idea here is that if you take out taxes now, you won’t have to pay them later, just like on your paycheck.
(Have I mentioned recently that it’s a good idea to talk with a tax pro?)
Here is the entire page. Apologies that it’s so long.
After all that, you can review all of your selections.
From there, the form itself is populated. You get a glimpse of this on the next screen when you’re asked to “sign” the form.
Once done, you’re all set!
A few days later, I received a confirmation of the withdrawal. What was interesting here is that in this document, Vanguard details exactly how much in the way of earnings that contribution incurred.
And that right there is the coolest part of this whole long process: you don’t have to calculate anything. Vanguard takes care of all that for you.
Is that all?
And with that, I think that’s all. We’ll see if there’s another part in this saga, but I think we’re done.
I hope you found this guide helpful. If you find yourself in the Roth IRA danger zone, having contributed too much, you can use this whole post series to figure out the path forward that is best for you.
But also, make sure to check with a tax pro.