[MArk]

Hello, I have a question. Please be kind.

I opened a Roth IRA in April 2022 with Vanguard. I knew my income was too high in 2021, so I intentionally waited until 2022 to open it. I processed my 1st transaction of $3,000.

I was so excited. I remember it asked if I wanted to apply it to 2021, no I didn’t and believed that was the choice I made. Later in 2021 I received a Form 5498 stating that $3,000 was applied to 2021. What!!! No!!! I called Vanguard and asked if we could do a correction.

I wanted that in 2022, not 2021. They told me the only way to correct it was to process an excess contribution + earnings, have the money returned and turn around and redeposit it for 2022.

I explained the money was deposited in the year 2022, wasn’t there a way to do a correction to the year? No! So I agreed to do whatever I needed to correct it. I don’t want to get into trouble with the IRS. Since the market was down, my $3k was now $2,641.34.

They returned that amount to me. Now doing my taxes I am told I have to correct my 2021 taxes and pay taxes on the money returned.

I thought you could take your contributions out at anytime. this money was after tax money. What?

I clicked the wrong box and not only lost $358.66 but I have to redo 2021 taxes and pay taxes on this?

This seems wrong… can some explain this to me.

Thank you in advance for your help and being kind.

I already know I made a stupid mistake no need to state the obvious.

[Jason]

You wouldn’t owe any additional tax. You did the right thing and got it reversed. The explanations given in tax prep software speak in generalities that may not apply to your situation.

[Jeffrey]

It’s important to be very careful when making IRA contribution between January 1 and tax day each year. This is because contributions during that time can be deposited for the current year or the prior year. There should be a box to check for which year you would like to make the contribution for.

[Author]

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