The $6,500 2018 contribution had to be returned no later then April 15, 2019 to avoid the 2018 6% penalty. Since that was not done then you must file a 2018 5329 form reporting that penalty and pay the 6% penalty.
Since the 2018 excess also was not removed in the 2019 calendar year (before Dex 31, 2019), you must also file a 2019 5329 and pay another 6% penalty.
If finally removed in June 2020 then you should receive a 2020 1099-R next Jan 2021 with a code J in box 7 that will be reported on your 2020 tax return. Because it will be a return of after-tax money then the 1099-R amount will not be taxable in 2020.
Your 2019 excess removed before the due date of the 2019 tax return. The resulting 2020 1099-R for that should have a code JP in box 7. The returned contribution will not be taxable but any earnings reported in box 2a will be taxable income in 2019.
You do not file any substitute 1099-R because the substitute is to correct an error and the 1099-R's that will be issued will be correct. Both 1099-R's will be 2020 1099-R not 2019, although the code JP will require amending 2019 to report the earnings that are taxable in 2019. To avoid amending 2019 when the 1099-R comes - see below: (that is NOT a substitute 1099-R, but entered as a actual 1099-R the same as if you had it and are amending.)
*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2019 tax return and the earnings were also returned and you know that the IRA custodian will report this as a return of contribution and not as a normal Roth distribution but as a return of contribution with a code "JP" in box 7 - then:
You can just report it now and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or box 12 State withholding. Then you must also enter the 2020 1099-R into the 2020 tax return since the withholding is reported in the year that the tax was withheld. The 2020 code JP will not do anything in 2020 but the withholding will be applied to 2020.
You would enter the 1099-R with the total distribution in box 1 (the contribution plus the earnings),
The earnings in box 2a,
Enter code "P" in box 7 (Top) - don t worry that it will say "taxable in 2018 "
Enter code "J" in box 7 (Bottom).
On the "Which year" screen say that this is a 2020 1099-R. - That makes it taxable in 2019 and not 2018
After the 1099-R summary screen press continue.
If you are over 59 1/2 then on the "Lets see if we can lower your tax bill" enter the box 2a amount in the "Another Reason" box to eliminate the 10% early withdrawal penalty on the earnings.
Enter the explanation for the excess contribution and that you are reporting a 2020 1099-R on your 2019 tax return to avoid having to amend in 2020.
The box 2a earnings will be taxable income reported on line 4b on the 1040 form and if under age 59 1/2 will also be subject to a 10% penalty on a 5329 form that will be reported on line 59 on the 1040 Schedule 4 form. |
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
