Requesting an IRA excess removal: Common questions
Can I withhold taxes from my excess removal?
When you remove the excess contribution from your account, only the earnings portion (if any) is available for tax withholding. We won't withhold taxes from your original contribution amount or if you request the removal after the IRS tax-filing deadline has past.
For instance, if you remove your excess contribution plus earnings before either the April 15 or October 15 (if applicable) deadline, the earnings are taxed as ordinary income—you can withhold taxes from the earnings portion of the removal.*
Note: Per our written request policy, if you remove the excess contribution from your Vanguard Brokerage Account through DocuSign, we'll distribute any withholding from your Vanguard Federal Money Market settlement fund's available balance.
If you remove your excess contribution after the April 15 or October 15 deadline (if applicable), you can't remove the earnings and you can't withhold taxes from this removal.*
*Regardless of your tax withholding election, you may be subject to taxes and penalties when you remove your excess contribution.
What can I do with the excess contribution after I remove it?
Your options depend on your account type.
When removed from your Vanguard mutual-fund-only account, you can:
- Move your excess contribution to your mutual-fund-only nonretirement account.
- Receive your excess contribution as a check.
Note: We can't send an excess contribution removed from a mutual-fund-only account directly to a bank.
When removed from your Vanguard Brokerage Account, you can:
- Move your excess contribution, in kind, to your Vanguard Brokerage Account nonretirement account to avoid selling your investment holdings.
- Receive your excess contribution as a check or as an electronic bank transfer (EBT). You may have to sell your investment(s) to ensure you have enough money in your Vanguard Federal Money Market settlement fund.**
**Per our written request policy, if you remove your excess contribution through DocuSign and you elect to receive a check or an electronic bank transfer (EBT), we'll remove the excess from your Vanguard Federal Money Market settlement fund.
What should I do if my excess contribution didn't happen at Vanguard?
If the excess contribution didn't happen at Vanguard, you should contact your previous financial institution to obtain an earnings statement that accounts for the time and place of the funds before you transferred them to Vanguard. Alternatively, you can self-calculate the earnings (or losses)—but we recommend you consult a qualified tax advisor about your personal situation.
Once obtained, you'll use the previous account's information to complete the electronic IRA and ESA Excess Contribution Removal Process. In the same section, we'll ask you for the "contribution date", which is the date you contributed to your IRA at the other financial institution.
How do you calculate excess contribution earnings?
If your excess contribution is removed by your tax filing deadline, plus extensions, the proportional earnings (gains) or losses are also removed. Vanguard has adopted the method set forth in IRS Notice 2000-39 and Proposed Regulations 1.408-11 to calculate these earnings or losses.
The calculations are based on ALL assets in your IRA plan, not just the fund contributed to. For partial excess removals, the latest contribution(s) are removed first and are used in the calculation.
For additional information and examples, read IRS Publication 590-A, Contribution to IRAs.
What if I used an automatic investment plan (AIP)?
Maybe your dollar amount was set a little too high. (We still think AIPs are the most convenient and easiest way to help you meet your goals!)
What if I invested my money in an IRA at another company?
Remember that your annual contribution limit is a single cumulative amount that applies across all your traditional and Roth IRAs and not within each IRA.
What if I forgot I already contributed to my IRA?
You might have used a tax refund, for example, to make an IRA contribution earlier and then contributed again later for the same tax year.