@uk05 wrote:
Thanks, @macuser_22.
Where I think some of the confusion lies is with the wording of Publication 590-A, which says “The earnings are considered earned and received in the year the excess contribution was made”. If interpreted literally it would mean earnings returned on excess contributions made in 2020 but attributed to 2019 would be associated with 2020. I think that’s where the brokerage firms and others like myself are being tripped up.
That is correct. But it is not referring to a calendar year, it refers to the tax year. The tax law allows 2019 contributions until the due date of the tax return so any 2019 contribution made before that due date is a 2019 contribution.
It also says:
Earnings Includible in Income
You must include in income any earnings on the contributions you withdraw. Include the earnings in income for the year in which you made the contributions, not the year in which you withdraw them.
The year "in which you made the contributions" is 2019.
The wording is confusing because they do not explicitly say "calendar year" or "tax year".
The 1099-R instructions are more clear for reporting the excess. The return of excess Roth contribution in 2020 requires a 1099-R with a code PJ in box 7 that means "taxable in 2019". The taxable amount is in box 2a which is the earnings. That can ONLY be reported on a 2019 tax return.
Roth IRA.
For a distribution from a Roth IRA, report the total distribution in box 1 and leave box 2a blank except in the case of an IRA revocation or account closure and a recharacterization, earlier. Use Code J, Q, or T as appropriate in box 7. Use Code 8 or P, if applicable, in box 7 with Code J. Do not combine Code Q or T with any other codes.
However, for the distribution of excess Roth IRA contributions, report the gross distribution in box 1 and only the earnings in box 2a. Enter Code J and Code 8 or P in box 7.
**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.**
