It would be better to return the excess contribution by April 18 and then report it in the following manner. The IRS says If you exceed the 2021 IRA contribution limit, you may withdraw excess contributions from your account by the due date of your tax return (including extensions). Otherwise, you must pay a 6% tax each year on the excess amounts left in your account.
If you withdraw the excess contribution in 2021 and you have not yet filed your tax return, you can report the withdrawal so you are not charged the 6% penalty for 2021.
To report the withdrawal you create a substitute 1099-R
- 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
- Enter code "J" in box 7 (Bottom).
You may receive a 1099R next year reporting the return of your contribution. you won't need need to report that 1099R since you have already reported it this year.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
