I had excess earnings for overcontributing to my 2020 Roth IRA retuned just yesterday on 3-5-2021. I wont have a 1099-R until 2022 from brokerage. How do I handle?

[craigrrose]

I could use some clarification please. I am over 61 and realized last week that I had overcontributed to my Roth IRA in 2020. I determined my MAGI (modifed adjustable gross income) on worksheet 8606 to determine my permitted Roth amount, as I am in the income range that only some of my Roth is allowed.  Anyways, I called my brokerage and they already returned both a) Excess Returned Contributions, and b) The Earnings on Returned contributions of $674, which they calculated. They did not send me a 1099-% and I don't think I would get one until 2022 I assume.
Here is my question.
1) Can I report the $674 earned on next years 2021 taxes?
2) If not how do I report this in the Turbo Tax for this year? Can you offer the step by step process for beginners if so kindly?

[DanaB27]

1)No, the earnings from the returned excess contribution have to be included in the year for which  the contribution was made. Therefore the $674 have to be included on your 2020 tax return.

2)To create a 1099-R in your 2020 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Select "I'll type it in myself"
5. Box 1 enter total distribution (contribution plus earning)
6. Box 2 enter the earnings of $674
7. Box 7 enter P and J 
8. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

[craigrrose]

HI, I could not find how to create 1099-R ....as an option anywhere.... sorry.

I followed the Search notes you indicated and it took me to screen that simply asks..... Did you get a 1099-R in 2020?.... with a Yes or No box choice....any clues. I  am using Microsoft Edge as my browser, 

[DanaB27]

Please follow these steps to create the 1099-R:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Answer "yes" to "Did you get a 1099-R in 2020?"
5. On the "Get ready to be impressed" screen click "continue"
6. On the "Let's import your tax info" click "Change how I enter my form"
7. On the "How do you want to add your 1099‑R?" select "Type it in myself"
8. Select "Financial institute or other provider 1099-R"
9. Fill out your financial institute information, you might have to contact your bank for the federal ID number/Payers TIN.
10. Box 1 enter total distribution (contribution plus earning)
11. Box 2 enter the earnings
12. Box 7 enter P and J 
13. Click "continue"
14. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

 If you feel unsure about creating the 1099-R then you option to wait until you receive the 1099-R  2021 in 2022 and then amend your 2020 return.

Please be aware if you report it now in your 2020 return then you can ignore the 1099-R 2021 when it comes unless there is Box 4 Federal Tax withholding and/or box 14 State withholding. Then you must enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021.

[craigrrose]

3-20-2021:

First, thank you for the reply on this topic.

I followed your detailed steps and it worked well, I created and sent my 1040 2020 year form in on 3-12-21 and it was accepted. I owed money this year and already have prescheduled his to auto-pay in April before the 4-15-21 deadline which I have learned has been extended an extra month.

Crazy now what a couple of weeks can make a difference. I learned now that new tax laws have been implemented and that my unemployment income which I claimed  on my return is no longer taxable up to $10,200. Wow, that is great to know. This raises a series of new questions below:

1)  First, I now estimate I will probably get a refund and not have to pay. Can I (Should  I ?)  cancel my auto-payment schedule within Turbo Tax ?

2) I am awaiting the new Turbo Tax amendment form to become available on 3-25-21 indicated. I assume I will need to send this in to allow me to report the correct amount of unemployment income earned.

3) Now that I have lee unemployment income, I also realize that I will be well under the 2020 MAGI limit. Now I realize that I could have in hindsight fully funded my Roth for the year, and the previously returned excess contributions of over approx $2,500 and earnings of $674 did not need to be withdrawn. If I correct in assuming that I should just account for this on the ammended form as well. By that I actually mean that I should not have to indicate that the $674 should be reported as income anymore because it would not be taxable (I think?) since I am age 61 and can be just considered as a regular withdraw from my Roth which I have had for over 5 years too.

4) Lastly, sorry. If I did want to return the approx $2,500 back to my Roth for a 2020 contribution , could I? I would just keep the earnings I guess as it seems complicated to try and return that portion too now. Any thoughts? Do I need to contact the financial institution whom handles to coordinate this?

[DanaB27 · Accepted solution]

1) Yes, it might be a good idea to cancel your automatic payment with all the changes and the payment due date being extended to May 17th as well. 

Call IRS e-file Payment Services 24/7 at 1-888-353-4537 to inquire about or cancel your payment, but please wait 7 to 10 days after your return was accepted before calling. Cancellation requests must be received no later than 11:59 p.m. ET two business days prior to the scheduled payment date.

2)As of now please do not amend your 2020 tax return, the IRS will soon provide taxpayers with additional guidance what to do. If you want to receive updates then please sign up here.

"For those who received unemployment benefits last year and have already filed their 2020 tax return, the IRS emphasizes they should not file an amended return at this time, until the IRS issues additional guidance." Please see IRS statement American Rescue Plan Act of 2021 for details.

3)You would still report the distribution of the excess contribution and earnings on your 2020 tax return. 

4)Yes, if you MAGI is lower and allows you to contribute to the Roth IRA then you can still make contribution until April 15.