I did an IRA contribution of $720 in 2020 (total earning in 2020), and converted the entire amount to ROTH in 2020. When I did my 2020 tax last year, I found out I had an excess contribution of $51. So Fidelity reverted $51 (actual $49.50 due to loss) from ROTH to regular IRA before the tax deadline, and I filed my 2020 tax with the correct contribution amount of $669. So the $49.50 becomes my 2021 contribution to IRA. I now received the 1099R for the $49.50 distribution with code PJ, and I understand I need to amend my 2020 tax return. My questions are:
1. Since I actually had a loss instead of a gain, is the amendment necessary?
2. How should I do the amendment for the 2020 tax? Would it be to only include this new 1099R? The 1099R has code PJ in Box 7. I was over 59 1/2 last year, and have had the ROTH account for over 20 years, so I think the code J for early distribution is wrong. Do I need to get Fidelity to issue a new 1099R with the code P8 instead?
Thanks very much
Q1. No, only earnings from excess contributions are taxable but you had a loss therefore this will not change your taxable income. If you decided to file an amended 2020 return it would be for information only but not a taxable event. Please see Do I need to amend? and How do I amend my 2020 return? for additional information.
Q2. No, the code is PJ is correct. Only earnings are taxable and if you had earnings, you would enter the exception for the person over 59 ½ like below (a person under 59 1/2 would have to pay the 10% penalty on the earnings). But you had a loss therefore this doesn’t apply to you.