I just got my 1099-R form from Vanguard for 2020 and it shows 6000 in Box 1 and 1P in Box 7 which means it is an early distribution before 59 1/2. Box 2b is also checked (taxable amount not determined).
Turbo tax does not include that in my taxable income or calculate any tax on it when i upload the statement. It did not ask me any questions around it. May be because this is about 2019 contribution.
Should I say yes to the question about excess contribution from earlier years? Or should this have been handled as part of 2019 return?
Actually this was my traditional IRA contribution for 2019 and I realized that I am not allowed to do a deductible IRA. I checked with the broker's representative that i may want to convert it to Roth (backdoor) but if could withdraw it then and would it have any impact. She said that she can revert the transaction as I was not eligible for a deductible IRA and therefore i got the money back in my bank account. I had 5.09 of gain on that contribution so that was also paid to me.
How do i report this to the IRS in my 2020 tax return. Do I have to pay early withdrawal tax on the 6000 contribution ? Is 1P the right code if it was a mistake to deposit that money in IRA?
Do i need to fill form 5329 and if yes then would it be for 2020 and would it show the 6000 or just 5.09 and if yes, in which section?
Thanks for your help.
The 5329 is not required if all 1099-R's have a code 1 - it simply goes on the 1040 Schedule 2 line 6.
5329 instructions:
You received a distribution subject to the tax on early distributions from a qualified retirement plan (other than a Roth IRA). However, if distribution code 1 is correctly shown in box 7 of all your Forms 1099-R and you owe the additional tax on the full amount shown on each Form 1099-R, you don’t have to file Form 5329. Instead, see the instructions for Schedule 2 (Form 1040 ), line 6, in the instructions for Forms 1040 and 1040-SR, or Form 1040-NR, for how to report the 10% additional tax directly on that line.
No, you do not need to file Form 5329. There is no additional tax since you withdrew before the due date of your return.
Select Yes, this was a withdrawal of an excess contribution.
The 1099-R should not be included in income and should not generate tax.
Thanks for your reply.
Where should i select yes for withdrawal of excess contribution? Turbo tax did not ask me anything about that 6000.
However when i said yes to 'Did you have any excess contribution in prior year years' and entered 6000 it created a form 5329. Should i just say No? Is 5329 not filled if excess contribution is withdrawn before due date? Is it not a distribution? Right now i do not see it reported anywhere on any tax form.
Vanguard customer support tells me that i should fill 5329.
Since you withdrew the 2019 excess contribution and earnings you answer "no" to the question "Did you have any excess contribution in prior year years". This question only applies if someone doesn't removed the excess contribution.
A 1099-R 2020 with code P and 1 belongs on your 2019 return. I would have expected that the 1099-R has $6,005 in box 1 and the earnings in box 2 of $5 since the return of the contribution isn't taxable but the earnings are. The earnings would also be subjected to the 10% early withdrawal penalty (this is calculated on Form 5329). Since your 1099-R doesn't show any earnings it will not trigger any additional tax if you add the form to your 2019 amended return. You might want to check with your bank about the form.
Please see How do I amend a 2019 return in TurboTax? for additional information.
Thanks for your reply.
My 1099 does have two rows:
-6000 with 1P in box 7
-5.09 in Box 1 and 2a and code 81 in Box 7.
And in my 2020 tax return turbo tax included the 5.09 as taxable distribution. Is that right or should it be taxable for 2019?
And when i amend the 2019 return, what would i change? Just upload a substitute 1099 R with this 6000? How do we avoid double counting the 5.09?
Would i get a 5329 in 2019 with the change?
And which forms should i resend with the amended return?
Thanks again,
Rajesh
@goyal_raj wrote:
Thanks for your reply.
My 1099 does have two rows:
-6000 with 1P in box 7
-5.09 in Box 1 and 2a and code 81 in Box 7.
And in my 2020 tax return turbo tax included the 5.09 as taxable distribution. Is that right or should it be taxable for 2019?
And when i amend the 2019 return, what would i change? Just upload a substitute 1099 R with this 6000? How do we avoid double counting the 5.09?
Thanks again,
Rajesh
Is the IRA/SEP/SIMPLE box checked on the 1099-R?
That sounds like a return of excess deferrals to an employer plan like a 401(k) and not an IRA. The rules are different.
@goyal_raj wrote:
yes, Box IRA/SEP/Simple is checked.
A return of an IRA contribution *for* 2019 should have the returned amount in box 1 the earnings in box 2a (or zero if no earnings) and a code 1P in box 7. That is reported on an amended 2019 tax return - only the box 2a amount will be taxable.
A 1099-R with a code 8 means a IRA contribution *for* 2020 with the returned 2020 contribution on box 1 and the earning in box 2a.
On the other hand excessive 401(k) deferrals *for* 2019 and returned in will have code P1 with only the returned deferral in box 1 and 2a that is reported on an amended 2019 tax return, but the earnings are reportable in the year returned so the 2020 1099-R with a code 8 only reports the earnings in box 1 and 2a.
You need to talk to the IRA administrator as it looks like they are reporting it as if it were a 401(k) (or similar plan) and not an IRA. The reporting rules are very different.
i am trying to enter my 2020 1099-R on my 2019 return by amending the return. When i try to enter the 1099 details and got o box 7 it shows me 1P as Return of contribution taxable in 2018. However this is for 2019, so how do i get the correct data?
Thanks for your help so far.
@goyal_raj wrote:
i am trying to enter my 2020 1099-R on my 2019 return by amending the return. When i try to enter the 1099 details and got o box 7 it shows me 1P as Return of contribution taxable in 2018. However this is for 2019, so how do i get the correct data?
Thanks for your help so far.
A code P entered into 2019 will ask what year is on the 1099-R. Say 2020 then 2018 changes to 2019. Code P advances the year by one every year.
yes, that worked.
After I finished it says that nothing has changed on my return. And asks me if i want to file an amendment.
The only change I see is that it states IRA distribution under line 4a on my 1040 and the taxable amount is zero. There is no 5329.
Should i send the 1040X, 1040 and 1099-R copy as part of amendment? IS it required?
Thanks for your help,
Raj
As I said above, it would seem like the 1099-R is incorrect. You should ask the issuer why you received two 1099-R's for a Traditional IRA excess contribution. What they sent was incorrect.
I would not file it at all until it is explained or corrected.
i did check with Vanguard and they said that 6000 is excess contribution for 2019 and 5.09 is the gains on it in 2020 (since i contributed for 2019 in Jan 2020). So he said the codes are right, 6k is for 2019 and 5.09 is for 2020 since it was a result of the contribution made in 2020 and the income was earned in 2020.
For an IRA the tax law says the gains (earnings) must be reported in the year that the contribution was made not returned.
Your financial institution is confusing the rules for an IRA with a 401(k) where the earnings are taxed in the year returned.
IRS Pub 590A for a Traditional IRA says - (see bold below)
Report it on your return for the year in which the excess contribution was made
In your case that is 2019 not 2020.
https://www.irs.gov/publications/p590a#en_US_2020_publink1000230873
[quote]
You won’t have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw any interest or other income earned on the excess contribution. You must complete your withdrawal by the date your tax return for that year is due, including extensions.
How to treat withdrawn contributions.
Don’t include in your gross income an excess contribution that you withdraw from your traditional IRA before your tax return is due if both of the following conditions are met.
No deduction was allowed for the excess contribution.
You withdraw the interest or other income earned on the excess contribution.
In most cases, the net income you must transfer will be determined by your IRA trustee or custodian. If you need to determine the applicable net income you need to withdraw, you can use the same method that was used in Worksheet 1-3.
If you timely filed your 2020 tax return without withdrawing a contribution that you made in 2020, you can still have the contribution returned to you within 6 months of the due date of your 2020 tax return, excluding extensions. If you do, file an amended return with "Filed pursuant to section 301.9100-2" written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return (for example, if you reported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting that the withdrawn contributions are no longer treated as having been contributed).
How to treat withdrawn interest or other income.
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. Your withdrawal of interest or other income may be subject to an additional 10% tax on early distributions discussed in Pub. 590-B.
[end quote]
Checked with Vanguard again and after multiple rounds of back and forth with their tax dept they tell me that since the earnings accrued in 2020 (even though the contribution was for 2019) the code shall be 81 only and it is taxable in 2020. If it accrued in 2019 then it would be for 2020. I told them about IRS publication 590A.
What choice do i have now? Go with what VG says or add a substitute 1099R with the earnings on 2019 tax return? And in which year do i send the 5329?
Thanks,
@goyal_raj wrote:
Checked with Vanguard again and after multiple rounds of back and forth with their tax dept they tell me that since the earnings accrued in 2020 (even though the contribution was for 2019) the code shall be 81 only and it is taxable in 2020. If it accrued in 2019 then it would be for 2020. I told them about IRS publication 590A.
What choice do i have now? Go with what VG says or add a substitute 1099R with the earnings on 2019 tax return? And in which year do i send the 5329?
Thanks,
That is the rules for a 401(k) type plan. I quoted the actual IRS rules for reporting the earnings for an IRA.
Did you ask them if they think this is a 401(k) type plan and not an IRA?
I would ask for their discussion in writing so if the IRS challenges the incorrect reporting, you would have their answer in writing to send the IRS.
Yes, I have sent them an email to confirm.
So if I follow the code on the broker statement, i would add my gains to 2020. How do i get the 5329 then for 2020 and would it show just that gain of 5.09?
And do i need 5329 for 2019 also? I could not generate it in Turbo tax if enter just the 6k contribution.
Thanks,
@goyal_raj wrote:
Yes, I have sent them an email to confirm.
So if I follow the code on the broker statement, i would add my gains to 2020. How do i get the 5329 then for 2020 and would it show just that gain of 5.09?
And do i need 5329 for 2019 also? I could not generate it in Turbo tax if enter just the 6k contribution.
Thanks,
There will not be any 5329 at all the way the 1099-R's are unless you are under age 59 1/2 then the $5.09 would be subject to a 10% penalty. (51 cents).
Thanks. I am under 59 1/2. So i guess i need a 5329 for 2020 then.Right?
Yes, there may be a 5329 filed with your return that will report that .51 penalty.
Thanks for your reply.
How do i generate the 5329 from Turbo tax then?
If i do it manually should i just enter 5.09 in line 1 on the 5329? and then calculate the .51 penalty?
@goyal_raj wrote:
Thanks for your reply.
How do i generate the 5329 from Turbo tax then?
If i do it manually should i just enter 5.09 in line 1 on the 5329? and then calculate the .51 penalty?
No. You enter the 1099-R and TurboTax will create the 5329. The penalty will be $1.00 because all numbers are rounded to the nearest dollar.
No it does not generate a 5329 for 2020 even though it added that income in my taxable income. How do i get it to generate one?
Thanks,
The 5329 is not required if all 1099-R's have a code 1 - it simply goes on the 1040 Schedule 2 line 6.
5329 instructions:
You received a distribution subject to the tax on early distributions from a qualified retirement plan (other than a Roth IRA). However, if distribution code 1 is correctly shown in box 7 of all your Forms 1099-R and you owe the additional tax on the full amount shown on each Form 1099-R, you don’t have to file Form 5329. Instead, see the instructions for Schedule 2 (Form 1040 ), line 6, in the instructions for Forms 1040 and 1040-SR, or Form 1040-NR, for how to report the 10% additional tax directly on that line.