You do NOT file a 5329 for the excess unless it is not removed by the extended due date of the 2020 tax return (Oct 15, 2021).
If yiu asked the financial institution for a "return of contribution plus earnings" of the 2020 excess in 2021 then you should receive a 2021 1099-R with a code PJ in box 7, the total returned amount in box 1 and the earnings in box 2a. That 1099-R must be reported on an amended 2020 tax return because the earnings are taxable in the year contributed - 2020. Only the box 2a earnings will be taxable and subject to a 10% early distribution penalty of you are under age 59 1/2.
If you KNOW that the financial institution will issue the 1099-R with a code PJ AND the exact amounts that they will put in box 1 and 2a, you can just enter it as if you have received the 1099-R so you will not have to amend when you receive the real 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 (Top) - don t worry that it will say "taxable in 2019 "
Enter code "J" in box 7 (Bottom).
On the "Which year" screen say that this is a 2021 1099-R. - That makes it taxable in 2020 and not 2019
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 2021 1099-R on your 2019 tax return to avoid having to amend in 2021.
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.**
