in request remove an excess IRA contribution in Charles Schwab account, what is tax withholding election mean?

When you remove an excess contribution from your Charles Schwab IRA, the tax withholding election refers to how you want to handle federal income taxes on the withdrawn amount. There are two main options:

  1. Withhold Tax: Choosing this option allows Charles Schwab to withhold a portion of the withdrawn amount (including any earnings) for federal income taxes. This can simplify your tax filing process because the tax is already paid to the IRS when you remove the excess contribution.

  2. Don’t Withhold Tax: If you choose not to withhold tax, you’ll receive the full amount of the withdrawn contribution (excluding any earnings) back into your account. However, you’ll be responsible for reporting the earnings on your tax return and paying any taxes due on them.

Here’s a breakdown of the pros and cons of each option:

Withhold Tax:

  • Pros: Simpler tax filing, ensures you pay any taxes owed on the earnings.
  • Cons: You might receive a smaller refund or owe additional taxes if the withheld amount isn’t exactly what you owe.

Don’t Withhold Tax:

  • Pros: You receive the full amount of the withdrawn contribution back.
  • Cons: Requires keeping track of the earnings and reporting them on your tax return, potentially leading to more complex tax filing.

Important Notes:

  • Regardless of the withholding election, you’ll still need to report the excess contribution and its removal on Form 5930 with your tax return.
  • The earnings on the excess contribution are generally taxable.

Charles Schwab Might Offer Guidance:

While the IRS sets the tax withholding rules, Charles Schwab might offer guidance or tools to help you decide on the tax withholding election during the excess contribution removal process.


  • If you’re unsure which option to choose, consulting with a tax professional is recommended. They can help you understand the tax implications based on your specific situation and advise you on the best course of action.

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