you need to contact the institution to get a corrected 1099-R. if you put you P in, the IRS matching program will probably catch it and you will get a notice.
if the won't issue a corrected one contact the IRS at -1-800-829-1040. they will send you form 4852. since the filing deadline is in 2 days., you may need to use the one in TT.
here's what the IRS says you should have done
You should always attempt to get your Form W-2, Form W-2c, or
Form 1099-R from your employer or payer before contacting the
IRS or filing Form 4852. If you don’t receive the missing or
corrected form from your employer or payer by the end of February,
you may call the IRS at 800-829-1040 for assistance. You must
provide your name, address (including ZIP code), phone number,
social security number, and dates of employment. You must also
provide your employer’s or payer’s name, address (including ZIP
code), and phone number. The IRS will contact your employer or
payer and request the missing form. The IRS also will send you a
Form 4852. If you don’t receive the missing form in sufficient time to
file your income tax return timely, you may use the Form 4852 that
the IRS sent you.
How was it coded on the 2018 Form 1099-R?
Was the corrective distribution was made by October 15, 2018?
For the financial institution to code a code "P" for a 2017 excess you must tell then them that the distribution is a "return of excess contribution" and not a normal distribution. It must also have been done before the due date of the 2017 tax return (April 15, 2018) or extended due date if a timely extension was filed (Oct 15, 2018).
The only way a Traditional IRA contribution can be an excess is if you did not have sufficient taxable compensation for your filing status or exceeded the $5,500, or $6,500 if you’re age 50 or older contribution limits.
It came as regular distribution. I did not show the contribution on 2017 taxes. E-Trade advised after many phone calls that the excess distribution was cancelled since it was over $6500. Earnings on it made it $7118.63 so they cancelled request. When we requested the $6500 online from them it went to us as regular distribution. I just had $6500 returned and not the $618.73. Should I get this returned tomorrow and how do I show on taxes? Do I need to amend 2017 taxes? Help!!!
@jnpatla wrote:
It was requested 4/12/19 but returned on 4/18/19
Since the 2017 contribution was not returned until 2019 then it was after the Oct 15, 2018 cut off date to have a return or contribution and a code P. A regular distribution code would be correct.
You would owe a 6% penalty for 2017 on the amount of the excess. It is unclear from your post as to just how much of, or all, your $6,500 contribution was in excess. Only that amount in excess is subject to the 6% excess contribution penalty. It was not necessary to remove the entire contribution if only part was in excess.
Because the excess contribution was not removed and you must pay the 6% penalty on an amended 2017 tax return, the earnings do not need to be removed. The $6,500 2019 distribution will be taxable as an ordinary distribution on your 2019 tax return. You should be receiving a 2019 1099-R in January of 2020 with a code 1 in box 7 if you are under 59 1/2 or code 7 if you are 59 1/2 or older.
I received the 1099-R for 2018 showing code 7 in box 7. Also was told the entire $6500 was excess contribution which is was I requested however I later found out that it earned $618.73 and want to know how to handle this as I did not receive this amount.
@jnpatla wrote:
I received the 1099-R for 2018 showing code 7 in box 7. Also was told the entire $6500 was excess contribution which is was I requested however I later found out that it earned $618.73 and want to know how to handle this as I did not receive this amount.
Please clarify. You said in the post above that "It was requested 4/12/19 but returned on 4/18/19" - did you mean 4/18/18? - if removed in 2019 you would not have a 2018 1099-R.
@jnpatla wrote:
Yes, sorry
Then disregard my post assuming that it was returned in 2019.
Your option is as user HOCKITOFF suggested filing a 4852 substitute 1099-R with code P and with an explanation of the reason you are using a substitute and the steps you took to get it corrected (The TurboTax interview for a substitute 1099-R will ask for those explanation statements).
As for the $619 earning still in the IRA that should have been returned with the contribution - that might be sticky. If you simply remove it now, it will be another normal distribution that will be taxable and it is too late to have it returned as a return of contribution. You "might" be able to get the IRS to waive the penalty for late removal but that could take months of letter writing.
@dmertz do you have any suggestions for the earnings? Would it be possible to treat the earnings as a 2017 excess and just pay the 6% penalty on an amended 2017 return ($37) and just leave it in the IRA which would probably be cheaper in the long run?
The fact that only the $6,500 was distributed is problematic. Presumably the account gained $618.73 (or $618.63, the comment mentioning the earnings mentions both possibilities, but the $0.10 difference is insignificant), or 9.5189%. This means that, if treated as a return of contribution by submitting a substitute Form 1099-R (Form 4852), the $6,500 distributed represents a return of only $6,500 / 1.095189 = $5,935.05, accompanied by $564.95 of taxable gains. That means that the account still contains $564.95 of excess contribution made for 2017, subject to 6% penalty for 2017, 6% penalty for 2018 and 6% penalty for each year going forward until corrected by a regular distribution of $564.95 (which would be a nontaxable distribution of excess contribution basis after the due date of the tax return).
Last April you mentioned that the simplest way to resolve this was to treat it an a return of excess contribution after the due date of the 2018 tax return and report on 2017 as excess and treat the distribution on 2018 return by entering a zero in box 2a on 1099-R form prompting Turbo Tax to treat the distribution as nontaxable,, to apply the distribution on Form 5329 to eliminate the excess carried in from 2017 and to ask for an explanation of the return of excess contribution after the due date of the 2017 tax return however we did not continue as to where to put the earnings. Also after checking the initial investment a commission of $19.99 was charged so 6480.01 was actual amount. Can you please elaborate on this solution.
As an afterthought even though commission was charged the 1099 shows $6500. Also since I filed for extension, I can request the excess $618.73 be returned from the account today?
@dmertz wrote:
The fact that only the $6,500 was distributed is problematic. Presumably the account gained $618.73 (or $618.63, the comment mentioning the earnings mentions both possibilities, but the $0.10 difference is insignificant), or 9.5189%. This means that, if treated as a return of contribution by submitting a substitute Form 1099-R (Form 4852), the $6,500 distributed represents a return of only $6,500 / 1.095189 = $5,935.05, accompanied by $564.95 of taxable gains. That means that the account still contains $564.95 of excess contribution made for 2017, subject to 6% penalty for 2017, 6% penalty for 2018 and 6% penalty for each year going forward until corrected by a regular distribution of $564.95 (which would be a nontaxable distribution of excess contribution basis after the due date of the tax return).
@dmertz - Are you suggesting a substitute 1099-R (4852) with $6,500 in box 1, $565 (rounded) in box 2a and code P in box 7 which would be entered on an amended 2017 tax return (as a 2018 1099-R) so that those earnings are taxable in 2017?
Then enter the remaining $565 (rounded) in the 2017 amended return as an excess on form 5329 and pay the 6% penalty?
Then for 2018 add the $565 again on a 5329 for another 6% penalty?
Finally before December 31 2019, remove the remaining $564.95 as a normal distribution so that another 2019 6% penalty will not apply for 2019. In 2020 when the 2019 tax is done then enter that 1099-R distribution as non-taxable.?
That still leaves a problem that the IRS will receive a 2018 1099-R for a normal distribution form the IRA trustee that is being reported on a amended 2017 return with a code P instead. That is sure to generate an IRS letter in about a year that will have to be explained. (I guess a second substitute 1099-R with box 1 a zero and all else the same as the one received with an explanation of the situation might head off the IRS letters.)
Is my understanding of your suggestion correct?
I don't know what the best option is. I am looking for best possible solution from you. I need to file my 2018 taxes tomorrow since I had filed an extension. I also never listed the deposit on 2017 tax form since I thought it was being returned prior to tax year.
@macuser_22, yes I was suggesting that as a possibility if the distribution was made before the due date of the 2017 tax return, but I don't know how the IRS would react to it. The law does not specify how a return of contribution must be reported by the payer, only that a distribution that is a return of contribution must be accompanied by attributable gains (or loss), so treating a regular distribution made by the due date of the tax return as a partial return of excess contribution seems reasonable to me.
However, I didn't address the issue that the distribution actually occurred on 4/18/2018. 4/18/2018 is one day beyond the statutory due date of 4/17/2018, but on 4/17/2018 the IRS had processing problems that caused them to treat tax returns filed on 4/18/2018 to be timely filed. There was debate last year about whether or not this also extended the deadline for making IRA contributions or a corrective distribution before the due date of the 2018 tax return. My position on this was that the IRS granted an automatic 1-day extension but did not actually change the due date (since IRS processing problems had no bearing on the ability of an IRA distribution to be processed), so with that interpretation it appears that the distribution on 4/18/2018 was actually made after the due date of the 2017 tax return, that the 6%, $390 penalty is due for 2017 (on 2017 Form 5329), and the $6,500 regular distribution resolves the excess on the 2018 Form 5329, but is nontaxable. In 2018 TurboTax it's necessary to enter $0 in box 2a to trigger TurboTax to treat it as a nontaxable return of contribution after the due date of the tax return and prompt for explanation.
If one takes the position that the distribution can be treated as a return of contribution before the due date of the 2017 tax return, given that a 2018 code P Form 1099-R is reportable on the 2017 tax return I imagine that one would amend the 2017 tax return with an explanation statement indicating the partial return of the excess contribution that I described but include the substitute Form 1099-R (2018 Form 4852) with the 2018 tax return to explain why the code 7 Form 1099-R is not being included in income on the 2018 tax return.
I have corrected 2018 1099-R and put 0 in line 2A. Is is ok to amend my 2017 tax return after I file 2018. Also do I need to show excess contribution on amended 2017 and wait for any excess earned to be returned before I amend 2017 taxes?
You can amend 2017 after filing 2018, but you need to make sure that your 2018 Form 5329 shows on line 9 the $6,500 of excess contribution carried in from line 16 of the amended 2017 Form 5329 you will be filing. Don't wait too long to file your 2017 amendment.
@dmertz wrote:
You can amend 2017 after filing 2018, but you need to make sure that your 2018 Form 5329 shows on line 9 the $6,500 of excess contribution carried in from line 16 of the amended 2017 Form 5329 you will be filing. Don't wait too long to file your 2017 amendment.
@dmertz I am assuming that by filing the 2018 1099-R with box 2a a zero that the poster is conceding that the entire $6,500 2017 contribution was not timely removed and therefore owes a 6% penalty (excise tax) of $390 for 2017. Am I correct that in that case the earnings can stay in the IRA and do not need to be removed since the penalty has been paid on the entire amount?
Correct. Payment of the 6% excess contribution penalty and the need to distribute earnings are mutually exclusive. The need to distribute earnings is only mentioned in the statute regarding a return of contribution before the due date of the tax return.
I made an omission in my discussion of the deadline for removal of the excess contribution before the due date of the 2017 tax return. As long as the 2017 tax return was timely filed or an extension was timely requested, the deadline for the return of the excess contribution made for 2017 was October 15, 2018 and the distribution on April 18, 2018 was certainly before that (and I'm not sure why the custodian would not have completed the distribution as a return of contribution if that is what was requested). I'm not remembering my entire train of thought, but the fact that the distribution occurred before the extended due date is probably why I didn't originally consider treating the distribution as a return of contribution after the due date of the 2017 tax return.