Summary:

• The excess is subject to 6% exercise tax each year until distributed.
• The earnings are subject to tax as ordinary income in the year of withdrawal.
• The earnings are also subject to 10% early distribution penalty before 59$\tiny\frac{1}{2}$.

Details:

• You have up to the due date (including extension) to withdraw excess contribution plus earnings.
• After filing your return, you can still withdraw within 6 months “pursuant to section 301.9100-2”.
• If you have deducted the excess contribition, you need to amend the return not to deduct.
• Excess contribition can be absorbed by the allowed contribution limit next year.

Example:

• In 2019, Jack Ma (born September 10, 1964) made excess contribution 5000.
• In 2020, He made another excess contribution 6000.
• In 2021, In November, He withdrew 11,000 plus earnings 1,200.

Here are the consequences:

• In 2019, he will pay 5000 * 6% exercise tax.
• In 2020, he will pay (5000 + 6000) * 6% exercise tax.
• In 2021, he will pay regular tax and 10% early distribution penalty on 1200.

References: