Traditional or Roth IRA?
*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2020 tax return and the earnings were also returned and you know that the IRA custodian will report this as a return of contribution and not as a normal IRA distribution - then:
You can just report it now and ignore the 2021 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or box 12 State withholding. Then you must also 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 but the withholding will be applied to 2021.
You would enter the 2021 1099-R with the total distribution in box 1 (contribution plus the earnings),
The earnings in box 2a,
Check the IRA/SEP/SIMPLE box.
Enter code "P" in box 7 - don t worry that it will say "taxable in 2019 "
Enter code "1" in box 7 if under age 59 1/2 (lower box 7).
On the "Which year" screen say that this is a 2021 1099-R.
After the 1099-R summary screen press continue.
Enter the explanation for the excess contribution and that you are reporting a 2021 1099-R on your 2020 tax return to avoid having to amend in 2021.
The box 2a earnings will be taxable income reported on line 4b on the 1040 form and if under age 59 1/2 will also be subject to a 10% penalty on a 5329 form.
[EDITED to change years for 2020]
The excess IRA contribution was made in tax year 2020.
The gain/loss, on the excess contribution, HAS to reported in the tax year it occurred, i.e. 2020 return. My broker WILL NOT issue the 1099-R until the following tax year, 2022. However, when funds are removed from my IRA, broker will show the excess contribution removed PLUS the gains in tax year 2021. These gains have to be reported for 2020 tax return. IN 2022 a follow on 1099-R will be reported for 2020.
Where in TT do I report these gains as taxable income? I do not and will not be issued a 1099-R. The broker will issue the 1099-R in 2022 with a P.
I appreciate your help but you keep referring to a 1099-R. A broker cannot report a 1099-R after the close of the tax year.
So in conclusion, I need to report the taxable gain on my 2020 return without a 1099-R being issued. My major broker said the 2022 1099-R will show the excess contribution + gain with a P. IRS will see the gains reported in 2020 as taxable income and the excess contribution which is not taxable and the 2 will coordinate.
In TT, I checked I do not have a 1099-R and it led me to a substitute 1099-R where I entered taxable income section. I just am not sure this is the right method so as to coordinate with the actual 1099-R issued in 2022 for the 2020 excess contribution + gains. It's where to report the gains without a 1099-R is what is dogging me...
Nothing was said about a "substitute" 1099-R which is not appropriate. A substitute (form 4852) is used to *correct* a defective 1099-R that you *received* and the issuer refused to correct. You do not have a 1099-R to substitute for.
You are just entering an *original* 1099-R early that is all.
If you are not comfortable doing that, then just wait for the real 1099-R next year, and then amend 2020 to report it. Entering it early just saves the trouble of amending next year.