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tchesney
Returning Member

How do I fill out form 8606 if I had to do a removal of excess of contribution from my Simple IRA due to a payroll error?

The amount of my salary deferral from my paycheck was correct, but the amount deposited into my Simple IRA was too much.  I had to do a removal of excess contribution form. I was sent a check for the excess to send back to my employer. The check was for less than the contribution because I had losses (my employer is not asking for the difference back).  I was told I need to fill out form 8060 at tax time.  Looking at this form, I am clueless.  What are the nondeducitble contributions on Line 1? Is that the amount I had withheld from my check or the amount that was deposited into my IRA? Is this excess removal considered a distribution (under line 3)?

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3 Replies
dmertz
Level 15

How do I fill out form 8606 if I had to do a removal of excess of contribution from my Simple IRA due to a payroll error?

There is no such thing as Form 8060.  Perhaps they meant Form 8606, but this distribution shouldn't have anything to do with Form 8606.

 

What is the code in box 7 of the Form 1099-R?

In what year was the excess contribution made?

tchesney
Returning Member

How do I fill out form 8606 if I had to do a removal of excess of contribution from my Simple IRA due to a payroll error?

Correct, my typo. Yes 8606. 

This was a mistake made this year, so I do not have a 1099R yet. 

 

Does the fact that the excess contribution returned to me is less than the amount deposited mean that there was not enough in my account to fully reimburse? I've been contributing for over a year, so that would surprise me.  The overage was 458 and I got 447 back. I was told it was because I had a loss. 

dmertz
Level 15

How do I fill out form 8606 if I had to do a removal of excess of contribution from my Simple IRA due to a payroll error?

A return of contribution before the due date of your tax return is required to be adjusted for investment gain or loss between the time of the deposit and the time of the return of contribution.  With recent drops in the stock market, it's not surprising that the amount distributed would be less than the amount of contribution returned.

 

I would expect the 2022 Form 1099-R to have code 8 (perhaps along with code 1) and a zero in box 2a indicating that the distribution is not taxable and is not subject to any penalty.  Your 2022 tax return will just need to include an explanation statement indicating that the amount distributed corresponded to the amount of contribution returned because of investment losses.

 

If it was the employer's mistake to have deposited the excess $458, it's appropriate that they not ask you to make up for the investment loss.

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