Neardupe Where to enter earnings income when correcting excess Roth IRA contributions? (which I just updated).
- How much to withdraw? .... Is this right?
It looks right to me, but when you request this Vanguard should (re)compute it for you, using the figures for the date the correction is executed. (AFAIK all IRA custodians do this, but you asked about Vanguard. Note you need to tell the custodian this is a correction/removal, NOT a normal distribution, so they can report it on 1099-R correctly.)
- Since I am less than the Roth IRA withdrawal age, I expect there to be penalty for early withdrawal plus the taxes on the earnings. How do I calculate these taxes ? Do I calculate these ? Does Vanguard do it for me?
As above, Vanguard should compute the earnings. You put the earnings on form 5329 part I to compute the 10% tax (and carry it to 1040 schedule 2, which in turn carries to the basic 1040), and also put the distribution and earnings respectively on form 1040 line 4a and 4b -- and "attach a statement explaining the distribution", see the instructions for form 8606 -- which causes the earnings to be included in your taxable income when you continue with the usual tax computation on the rest of the form. Although the addtional tax is flat-rate, normal US income tax is nowhere near, so it is effectively impossible to compute the income tax on separate pieces of your income separately.
- When do I report this excess contribution removal ? In the 2019 taxes or in the 2020 taxes.
Also, in case you weren't aware, even if you are over the limit to contribute to Roth, in which case you are often also over the limit to deduct a trad IRA contribution, you can recharacterize last year's contribution as a nondeductible trad IRA contribution, and then convert the trad IRA to Roth with no income limit -- this is called backdoor Roth and there are numerous other Qs about it. If you don't already have (much) other trad-IRA pretax money (deductible contributions plus all earnings), the effect almost is the same as doing Roth directly: the nondeductible contribution 'basis' is not taxed when converted, and the earnings are taxed as ordinary income (but no 10% penalty) in the year converted, which would be 2020 (or later if you wait) not 2019. But if you do have trad IRA pretax money already, unless you convert all of it, you can avoid tax on only a pro-rata part of the basis and must leave the rest for the future, making this approach less attractive.