Hi, I put some money into daughters Roth when she didnt have any earned income. I contacted ameritrade and received and filed a removal of excess form. There were 2 contributions in 2021, one $1000.00 contribution was made early in 2021and was earmarked for application for 2020 contribution . She received a 1099r with a removal of $1000.00 exactly. The box 7 code was "J". The removal of excess paperwork was submitted with the T D Ameritrade calculates earnings option selected. I also had 10% federal and 6% state tax withheld. The excess removal was filed and money paid back by check in March 2022. Nothing has been done tax wise with it till now, and I am currently trying to figure it out. I believe the box J is incorrect and that IRS will not see this as a removal of excess but as just an early withdraw of funds and penalties could keep accruing.
The other contribution was made in 2021 for credit to tax year 2021 ira contribution limit. The removal of excess form was filed in 2022 and check received in 2022. Box 7 codes were P and J .
I contacted Ameritrade about the code J for removal of excess of the $1000.00 and got pushback about changing the code. They said that it wouldnt get the code P as the contribution was for credit to 2020 ira contribution limit even though the contribution was made in 2021. I said what about no code indicating removal of excess and the they said dont worry IRS knows that it is a removal of excess anyway.
My big questions are 1). Is code J correct for removal of excess of the $1000.00 for contribution to tax year 2020. If not, can I just put the correct code into turbotax or must I get Ameritrade to correct the 1099R with a correct code.
2). Is code J, P correct for the other withdraw of excess? The contribution was made in 2021 for credit to 2021 contribution limit. No taxes were taken from this smaller contribution that was removed from the Roth.
The removal was transacted in 2022 as was the other amount as well. Is it possible both should be coded "8".
3). Its possible I may have made invalid contributions to my IRA's for earlier years going back some years as well. If I have those removed in the future what codes should I expect to see?
4). Does turbotax caution you if an invalid contribution is made. Mine may have exceeded my earned income and be invalid. I have been retired for a number of years with most retiremennt income being pension and social security. Thanks for any and all help. Sorry it is so long question.
