For Roth excess contributions:

Excess Contributions Withdrawn by Due Date of Return (including extensions)

• No 6% excise tax

• Contribution must be adjusted for earnings (Pub 590b)

• Earnings are taxed (and 10% penalty may apply) in the year in which the excess contribution was made

o   So if you made an excess 2018 contribution and removed it in 2019, the earnings are taxable in 2018

• If you timely filed your 2018 tax return without withdrawing a contribution that you made in 2018, you can still have the contribution returned to you within 6 months of the due date of your 2018 tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal.

If you do not remove the excess amount by the deadline, you will owe a 6% IRS excise tax penalty for every year the excess remains in the account. When removed after the deadline, you do not need to pull out earnings, just pay the 6% excise

NOTE:  401k’s work differently. If removed buy the filing deadline, the excess amount taken out is then included in your gross income for the year in which it was contributed to the 401k, but the earnings are taxable in the year in which it was taken out.

What I Tell Them: If you contribute too much to a 401(k), the only way to correct the mistake is to have the plan administrator refund your extra contributions—known as excess deferrals—as well as any earnings on that money by the tax-filing deadline.

Your excess deferral will then be reported as income in the year the contribution was made, while the earnings—or losses—will count toward your income in the year you received the refund.

So say you over-contributed $2,000 in 2018 and got your $2,100 refund in March 2019. The $2,000 would count toward your 2018 income, but the $100 in earnings would count toward your 2019 income.

What happens if you fail to meet the excess deferrals tax-filing deadline?

You will have to not only report your excess deferral as income for the year you made the contribution, but also pay taxes on it in the year you finally withdraw it. In other words, you’ll get taxed twice on the same contribution.

For over contributions to IRAs, you must also withdraw the excess contribution, plus earnings, by the same tax-filing deadline as for 401(k)s.

But if you discover the mistake only after you’ve already filed your tax return, you have two options.

Within the next six months, you can file an amended return—with the excess contribution, plus earnings, removed—by the filing-extension deadline of October 17, 2019.

Or you can leave the excess contributions in your IRA in order to carry them over toward next year’s contribution limit—making sure, of course, to lower your ongoing IRA contributions to make room for the excess. However, you’ll have to pay a 6% penalty (via Form 5329) per year on that excess until it’s been absorbed or rectified.

The Bottom Line: While it doesn’t seem like it should be difficult to correct an honest error, the reality is that over contributing to your retirement accounts can wreak tax havoc if you don’t act fast.

So once your realize your mistake, arrange to withdraw the excess contributions, and make sure you understand the tax implications on those withdrawals—ideally with the help of a tax professional.”