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@ADVDan wrote:

I was told by an IRS phone agent the the distribution will show up as an early distribution (my wife is <59.5) for 2021’s taxes and that we will be assessed the 10% penalty. She said that I needed to attach a statement as to what occurred. Is all that incorrect?


If you requested a "return of contribution" plus earnings  from the IRA custodian then, yes the IRS agent is incorrect or did not understand that is was returned plus earnings or you did not understand just what would be taxable.

 

The returned contribution is not taxable or subject to penalty but any earnings are both taxable and subject to an early distribution penalty if under age 59 1/2.

 

You will receive a 2021 1099-R for this in January of 2022 since it was distributed in 2021, however, the earnings are taxable in the year contributed - 2020, so when you receive the 2021 1099-R you will need to enter it in an amended 2020 tax return.

Whether the return was because of an excess or you just wanted it returned is irrelevant. 

**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.**

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