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Hi Phil,

After talking to an IRS representative she helped me clarify my original confusion -- the one you pointed out regarding me thinking that I would have to withdraw both principal and earnings for prior years. From my original post: "I am also planning to remove both principal (=5,000) and earnings in order to correct the excess contribution and avoid paying 6% excise tax in subsequent years. My broker (E-Trade) will not calculate earnings on contributions made during years prior to 2013, so I will have to do it myself -- I did find the IRS Worksheet in Pub 590 to calculate the earnings -- and I will do so."

The representative confirmed that I only need to withdraw the principal of the excess contributions made in 2011 and 2012. The logic being that one should not be charged both a 6% penalty and an income tax penalty on the earnings (+ 10% early withdrawal if under 59 and 1/2) for the same year. Only one or the other. So either:

a) one withdraws principal + earnings before due date + 6 months grace period and pays income tax on earnings (+ 10% early withdrawal tax)
or
b) if the deadline for withdrawal for that year has passed, one will pay 6% excise tax penalty for that year and will only have to withdraw the principal excess later.

So, for my case:

2011: Amended return; form 5329 (2011); $5,000 total excess; $300 - 6% excise tax
2012: Amended return; form 5329 (2012); $10,000 total excess; $600 - 6% excise tax
2013: On-time return; 2013 $5,500 contribution withdrawn before tax filing deadline; $585 earnings on 1040 line 15b; 10% on early withdrawal penalty (=58) form 5329, line 1; $10,000 total excess; $600 - 6% excise tax
Simetimes in 2014: $10,000 excess withdrawn.
2014: On-time return(*); form 5329; $0 total excess; $0 - 6% excise tax

(*) Since I also already contributed $5,500 toward 2014 I will have to determine how much I was eligible to contribute and whether there is excess for 2014 (my projected AGI is going to be lower in 2014 then in 2013)

I hope this summary might help another member who may find herself in the similar predicament.

boris
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