@Wynter2020 wrote:
I have a similar situation and here are the details:
1) Contributed to Roth IRA for 2020 but was ineligible due to no earned income.
2) Did not realized 2020's contribution was ineligible until 2021 when it was returned plus gains.
3) Received a 2021 1099-R showing the return of contributions plus gains and the gains were shown as taxable on line 2a.
4) Line 4 shows tax w/h of $200
5) Line 7 shows codes J, P
6) I was 59 1/2 as of 1/1/20 should that be a variable
When I am filling out my 2021 tax return in Turbo Tax it is suggesting I may need to file an amended return for 2020.
I completed the amended return using Turbo Tax 2020 and numerous areas on my tax return were affected and here are my questions:
1) To make the change/update I simply went to income section for 1099-R's of Turbo Tax and added the 1099-R from 2021, however, I can't use the codes J,P because then it would indicate the removal is from 2019 and not 2020. Thus, what codes should be used on the amended return? Does it matter since that detail is not going to IRA in the 1040-X return?
2) Turbo Tax did not generate form 5329 so I assume that is correct and there should not be any penalties. Is that correct? Something in prior msgs was mentioned about removal being timely but I am NOT sure how timely is defined in my case.
3) When I entered the 1099-R in my 2021 return with the codes on the 1099-R Turbo Tax did not include the amount shown on line 2a in my total income which makes sense. However, even though it did remove the income from total 2021 income is did not remove the tax withheld shown on line 2a of that same 1099-R. Thus, I assume the tax I had w/h having to do with this transaction correcting the ineligible 2020 Roth contribution will actually reduce taxes in 2021 and not in 2020 where an amended return for the gains is to be filed. Is that correct?
Any "clear" help would be most appreciated. Thank you.
1) JP is the correct code. TurboTax assumes you are entering a 2020 1099-R but When you enter a 2021 1099-R code P into TurboTax 2020 it will ask if this is a 2020 or 2021 1099-R. Say 2020 that advances the year by one so 2019 becomes 2020.
2) No 5329 is needed forr this because there is no penalty.
3) Any tax withheld in box 4 (not box 2a - box 2a is the tax on the earnings) on the 2021 1099-R can only be reported on your 2021 tax return, not 2020. The returned contribution must be reported in the tax year the contribution was *for* (2020) but the withholding was done in 2021. That is why it makes no sense to have tax withholding on a return of contribution that spans tax years.
**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.**
