1099R box 7. Possible wrong code?

Forum|Forum|3 years ago
March 22, 2023
1 reply
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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.

Best answer by dmertz

1) Yes, code J is correct. The distribution was obtained too late to be able to be done as a return of contribution to avoid the 6% excess contribution penalty on the 2020 tax return. If the 2020 tax return did not include Form 5329 reporting the excess Roth IRA contribution for 2020, that form must be filed and the $60 penalty paid. The excess $1,000 contribution for 2020 carries forward to 2021 where it is again subject to a 10%, $60 penalty on a 2021 Form 5329. The code-J distribution in 2022 corrects this excess and will reduce the $1,000 excess carried into 2022 from 2021 to zero on the 2022 Form 5329.

2) Yes, codes J and P are correct for the return of the excess contribution for 2021. This return of contribution avoids any excess contribution penalty on the original contribution made for 2021.

3) If you have any excess contributions made for years prior to 2022, those would be corrected by making a regular distribution of exactly the amount of the excess with no adjustment for investment performance. You would also have to file a Form 5329 and pay the penalty for each year that there was an excess contribution in your Roth IRAs.

4) Yes, TurboTax informs you of an excess IRA contribution and prepares Form 5329 to assess the penalty, assuming that you enter the contribution and do not resolve the excess contribution before the due date of the tax return, including extensions.

D

dmertzAnswer

Level 15

1) Yes, code J is correct. The distribution was obtained too late to be able to be done as a return of contribution to avoid the 6% excess contribution penalty on the 2020 tax return. If the 2020 tax return did not include Form 5329 reporting the excess Roth IRA contribution for 2020, that form must be filed and the $60 penalty paid. The excess $1,000 contribution for 2020 carries forward to 2021 where it is again subject to a 10%, $60 penalty on a 2021 Form 5329. The code-J distribution in 2022 corrects this excess and will reduce the $1,000 excess carried into 2022 from 2021 to zero on the 2022 Form 5329.

2) Yes, codes J and P are correct for the return of the excess contribution for 2021. This return of contribution avoids any excess contribution penalty on the original contribution made for 2021.

3) If you have any excess contributions made for years prior to 2022, those would be corrected by making a regular distribution of exactly the amount of the excess with no adjustment for investment performance. You would also have to file a Form 5329 and pay the penalty for each year that there was an excess contribution in your Roth IRAs.

4) Yes, TurboTax informs you of an excess IRA contribution and prepares Form 5329 to assess the penalty, assuming that you enter the contribution and do not resolve the excess contribution before the due date of the tax return, including extensions.

K

kojajtAuthor

Level 2

Thank you for using your expertise to give me a reply to my tax question . II find doing the IRA's the toughest part of my yearly tax routine. With theYour answer gives me another question/s though. Do I need to file amended returns for Form 5329 for either of those 1099s for tax year 2020 or 2021. Thanks again for your help.