Yes, you can withdraw the non-deductible contribution before filing your 2021 tax return.
And yes, the entire gain must be reported as income on the 2021 return even though the return of contribution is not happening until 2022.
To take advantage of the loss you would have to cash out the entire value of the IRA. Then you would have to Itemize your deductions and post it to Schedule A.
You will get a 1099-R for the 2022 withdrawal; however, You can prepare a substitute 1099-R, and close the entire process this year. You would then not post the 1099-R next year.
To file a substituted 1099-R:
Wages & Income
IRA, 401(k), Pension Plan Withdrawals (1099-R)
Did you get a 1099-R in 2021? Yes
Get ready to be impressed - Continue
Select Change how I enter my form
Type it Myself
Continue the interview from here.
In most cases Box 7 is code 7
There will be a question Do any of these situations apply to you?
Select I need to file a substitute 1099-R
Continue through the interview
Note: If you’re 70 ½ or older, (not 59 1/2) you can't make a regular contribution to a traditional IRA.
Edited 02/15/2022
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