Went to make my 2025 IRA contribution a couple of weeks ago. I’m not eligible for a Roth (way too much income), but I’ve been doing a backdoor Roth for the past several years.
I erroneously made the contribution directly into my Roth account rather than the traditional IRA. Immediately realized my mistake and filed a form with the custodian to remove the overcontribution. It was pulled out the next day….. $7k in, $6965 removed the next day (presumably the custodian pro-rates it based on market movement between the contribution and the removal?)
How much of a paper headache have a caused myself? Any issues going ahead and making the correct non-deductible traditional IRA contribution and converting to Roth (i.e. backdoor Roth) during 2025?
Yes, the overcontribution is adjusted for the overall change to the value of your account from when you contributed vs. when you withdrew.
You could have had the custodian recharacterize the excess contribution into a Traditional after-tax contribution, rather than actually withdrawing the excess. But now that you have withdrawn the excess, you will need to fill out Form 5329 and Form 8606 to document the initial contribution and subsequent withdrawal.
More than if you had done the recharacterization.
You may have a hard time getting tax software to document the puts and takes correctly, but it’s legal to do so.