1099-R with box 7 = 2

Forum|Forum|5 years ago
February 12, 2021
7 replies
25 views

I made an excess (non-deductible) Traditional IRA contribution in 2020, discovered my error, and asked for the contribution to be returned shortly afterward. I received my 1099-R (from Vanguard) with Box 7 having a "2" entered. (early withdrawal, special case applies). The turbotax easy step interview says good news, no taxes are owed, yet the full amount of the withdrawal has been added to my income. It also doesn't ask anywhere to account for the slight interest gain between the amount of the original submission (5K) and the gain ($2).

Am I not answering something correctly?

dmertz

Level 15

Code 2 would never be used to report a return of contribution from an IRA. When the Form 1099-R reporting a distribution from a traditional IRA (IRA/SEP/SIMPLE box is marked) has code 2, the Form 1099-R is typically reporting a Roth conversion. The only other reason that in 2020 code 2 might be used is if the custodian is indicating that the distribution is a Coronavirus-Related Distribution, but IRA custodians generally don't do this because that don't what to take any responsibility for determining if you were qualified to receive a CRD.

dlandersncAuthor

Level 2

dmertz, I appreciate your comment, but I'm sure Vanguard processes thousands of these, so far be it for me to tell them they have filled it out wrong.

What I don't understand is that in the interview, Turbotax says I owe no taxes on this, yet when I look at the 1040 form, the funds have been added into income.

ToddL99

Level 13

Where do you see that these funds are included in taxable income?

They will show on Line 4a of your Form 1040, and in the total income column of your Income Summary, but not in Line 4b of Form 1040 (taxable IRA Distributions.