Last year I overfunded my Roth IRA account and my wife's Roth IRA account for the year 2020. I didn't discover the mistake until after I filed my 2020 taxes in March 2021. After I discovered the mistake, I contacted our brokerage accounts, and asked that the overages be moved out of the Roth IRA. This was all done before the tax filing deadline in April, 2021. We are in our mid-50s, and file jointly.
I received our 1099-R forms and the distribution codes from my brokerage and my the form from my wife's brokerage our different.
Line 7 on my form is 8J. Line 7 on my wife's form is PJ
According to Turbotax, I have to pay a 10% penalty for withdrawing Roth funds early(which is what I was expecting) Based on the codes for my wife's 1099-R, Turbotax gives me the message that I need to file an amended 2020 income tax form. (which I was not expecting. I was just expecting to pay the 10% penalty). I've called both brokerages, explained the situation to them and the fact that one form has one set of distribution codes and the other form has a different set of distribution forms.
Each brokerage firm has stated that their form is correct.
My questions are:
1) which set of codes are correct and why?
3) assuming that the forms should have the same distribution codes, how do I get a corrected form when both firms state that their codes are correct.
Generally, if you make an excess contribution for 2020 and remove this in 2021 before the due date the code in box 7 should be P and J on your Form 1099-R since the IRS states "You must include in your gross income the interest or other income that was earned on the excess contribution. Report it on your return for the year in which the excess contribution was made." Therefore, the earnings of a 2020 excess contribution should be reported on the 2020 tax return.
Some financial institutes will issue Form 1099-R with codes 8 and J if the contribution for 2020 was made in 2021. But correctly it should be P and J since it was a contribution for 2020 and the earnings should be taxable in 2020 and not 2021.
If you cannot get the 2021 Form 1099-R with codes 8 and J changed because the financial institution refuses then I would just enter this Form on your 2021 tax return as shown since this is what the IRS has in their records.
The 2021 Form 1099-R with codes P and J will have to be entered on your 2020 tax return. Please see How do I amend my 2020 return?