@sunandsand2024 wrote:
"....if you already rolled over this amount to your IRA, you should withdraw the amount plus any earnings as an excess IRA contribution".
Do you think that I should do that and then include the earnings as 'Other taxable Income" for 2023?
You are ineligible for that procedure because it is too late -- it had to be done before October 15, 2024.
What you do now is do what @dmertz said. You will file an amended 2023 return with the following changes.
1. Report the 1099-R with code G, this is a tax-free rollover.
2. Report the 1099-R with code E, this is treated as a taxable withdrawal subject to income tax, but it is not subject to the 10% penalty for early withdrawal even if you are under age 59-1/2.
3. Report an IRA contribution of $4600. This is the only legal way to account for the addition of the $4600 to the IRA because it is after the October 15, 2024, deadline for a normal correction.
When you report the $4600 IRA contribution, that could have several different consequences, depending on your income, filing status, and other factors.
a. It might be allowed and tax-deductible, in which case you report it, take the tax deduction, and no further action is needed.
b. It might be allowed, but not deductible. In this case, you report it, and no further action is needed at this time. Your tax return will contain a form 8606 reporting the non-deductible contribution. Because you now have some non-deductible money in a traditional IRA, a small portion of future withdrawals will be tax-free (since you paid tax on the contribution). To document this, you need to keep a copy of form 8606 basically for the rest of your life. You will need it when you retire and start making withdrawals.
c. It might not be allowed, or only partially allowed. Your limit for all Roth IRA and traditional IRA contributions in 2023 was $6500, or $7500 if you are over age 50. IRA contributions are counted separately from workplace retirement plans, but if you did make contributions to an IRA, the extra $4600 might put you over the limit. Turbotax will ask if you want to remove the excess. You will say no (because you are past the deadline). You will be assessed a 6% penalty on the excess contribution, and you will still get a form 8606.
If this happens, it may be possible to correct the problem on your 2024 tax return to avoid future penalties, depending on your situation. The correction would have to be made before April 15, 2025. So prepare your 2023 amended return first, see what the result was, and then we can talk about anything you might need to do for 2024.
