Hello, I am at a loss. I did stupid things last year for 2019 Tax and I am suffering from the consequences.
I hope the experts can help me with this..
In 2019, my wife and I made excess contribution to ROTH IRA and I reported Federal Tax (before 4/15/20, sometime in march 2020).
After finding this out, we contacted Vanguard and they suggested to make an Traditional IRA account and move some money from ROTH IRA. So we did..
A few days ago, I received two 1099-R forms (one attached to ROTH IRA and the other attached to Traditional IRA). I am pretty sure my wife would be the same, but not entirely sure.
1099-R attached to ROTH IRA shows,
Gross distribution (Box 1): X,XXX. XX
Taxable amount (Box 2a): 0
Federal income tax withheld (Box 4): 0
Distribution code (Box 7): R
State tax withheld (Box 14):0
remaining boxes are empty.
1099-R attached to Traditional IRA shows,
Gross distribution (Box 1): X,XXX.XX (this amount is about 168 dollars more than box 1 in ROTH IRA 1099-R)
Taxable amount (Box 2a): same amount as above line
Taxable amount not determined, total distribution (Box 2b): these boxes have "X" marked. no amount specified.
Federal income tax withheld (Box 4): 0
Distribution code (Box 7): 02
IRA/SEP/SIMPLE: checked with "X"
State tax withheld (Box 14):0
remaining boxes are empty.
What am I supposed to do? I am totally clueless at this point. Please help.
Let's get you straightened out. You know that you put too much money into each IRA. The contribution limit for the year is a ROTH plus Traditional = total allowed. Under age 50 is $6,000, while age 50 and up is $7,000. Income creates phaseouts.
Your ROTH 1099-R has a code R -R—Recharacterized IRA contribution made for 2020 and recharacterized in 2021. Enter the form, no tax consequence, just informational.
Your Traditional IRA - shows a distribution which includes the interest earned on the excess amount. Thus, $168 would be the interest earned. The line 2 is the taxable amount. Enter the form as is. You have a code 2—Early distribution, exception applies (under age 59½). This prevents you from paying a 10% early withdrawal penalty.
@AmyC is correct.
Let's get you straightened out. You know that you put too much money into each IRA. The contribution limit for the year is a ROTH plus Traditional = total allowed. Under age 50 is $6,000, while age 50 and up is $7,000. Income creates phaseouts.
Your ROTH 1099-R has a code R -R—Recharacterized IRA contribution made for 2020 and recharacterized in 2021. Enter the form, no tax consequence, just informational.
Your Traditional IRA - shows a distribution which includes the interest earned on the excess amount. Thus, $168 would be the interest earned. The line 2 is the taxable amount. Enter the form as is. You have a code 2—Early distribution, exception applies (under age 59½). This prevents you from paying a 10% early withdrawal penalty.
AmyC, Thank you!
I really appreciate your time and expertise explaining this to me. If you don't mind, I would like to ask some more questions...
1. You mentioned there is "NO Penalty." Correct?
2. I DO NOT have to file an Amendment for 2019 Federal Tax. Am I getting this correctly?
3. If I put in the numbers in 2020 tax return in Turbotax, then everything should be fine without any penalty or any sort of letters mentioning unpleasant things.. Right?
4. Do I have to make any withdrawal or any action for $168 on Traditional IRA to avoid any consequences before April 15?
I wonder how I could have survived this without help from Turbotax and experts...
@AmyC is correct.