Income tax being calculated on 1099 R for excess contribution removal

[gbgrz]

I contributed $6,000 to my tradtional IRA accidentally intsead of my wife's. My financial planner transferred it to my wife's traditional IRA where it was converted to the Roth. Now we each have a 1099 R, my wife's has code 2 and turbotax doesn't calculate an income tax due, but mine has code 8 and 1 and turbo tax is calculating an income tax due on that $6,000. I'm pretty sure I don't owe any taxes on the $6,000 because it is an excess contribution removal but I can't understand how to tell this to turbotax so it doesn't calculate income tax. Everything was done in the same year, 2019.

[fanfare]

Your 1099-R should show a small or zero taxable amount (box 2a).

[gbgrz]

Box 2a is the same as Box 1. I forgot to also mention that I didn't earn any interest or gain on it before doing the excess removal via the transfer to my wife's tradtional IRA.

[dmertz]

If box 2a of a Form 1099-R with codes 8 and 1 in box 7 and the IRA/SEP/SIMPLE box marked has the same amount in box 2a as is in box 1, the Form 1099-R has been prepared improperly and you need to obtain a correction from the payer.  The amount in box 2a of a Form 1099-R with codes 8 and 1 in box 7 and the IRA/SEP/SIMPLE box marked can never have box 2a equal to box 1 because the amount in box 2a of this form is to indicate the amount of earnings included in the gross amount distributed.  Having an amount in box 2a equal to the amount in box 1 would imply that you earned a nonzero investment gain on $0 invested, which is nonsensical.  With $0 of investment gain the amount in box 2a of this Form 1099-R should be $0.

[balexh]

I have the same issue; same amounts in boxes 1 and 2a, and the box "taxable amount not determined" says yes.  Another thread said to change box 2a on Turbotax to the correct amount manually:  https://ttlc.intuit.com/community/retirement/discussion/how-to-amend-withdrawal-of-roth-ira-due-to-e...    

Can I ask how you solved this for yourself?

[dmertz]

Contact the payer to obtain a corrected Form 1099-R.  If they refuse to provide a correction follow the instructions in IRA Tax Topic #154:  https://www.irs.gov/taxtopics/tc154

Finally, if you can't get a corrected form from the payer, file a substitute Form 1099-R (Form 4852) by marking the "I need to prepare a substitute From 1099-R" box on the Tell Us Which 1099-R You Have page and make your changes.

[balexh]

Thank you for replying!  After your answer I looked into my broker giving a correct form, and found this page from my broker which states that box 2a is often inaccurate, and that the account holder has to file form 8606:  https://www.betterment.com/resources/common-tax-form-questions/#16  

The IRS page you sent has instructions for filling out from 4852.  

I'm not sure which I need, but does that link I just included change your opinion on this?  Do you know how I can have Turbotax create the form I need?

Thanks again

[dmertz]

balexh, this thread discusses a code 8 Form 1099-R for a return of contribution.  Is that what you have?  If not, you do not have the same issue and nothing said previously in this thread applies.

It sounds a more like you have a code 1 or code 7 Form 1099-R reporting a regular distribution from a traditional IRA.  If so and if you have basis in nondeductible traditional IRA contributions, yes, Form 8606 is required to determine the taxable amount of your distribution.  TurboTax prepares Form 8606 automatically; be sure to click the Continue button on the Your 1099-R Entries page and answer all of the questions that follow.

[balexh]

Thank you. 

Yes, it is code J8 (removal of 2019 contribution) in box 7, and I have another 1099R with code JP (removal of 2018 contribution).  Both say "removal of excess."   All the contributions I made were with already-taxed income. 

Not sure if this is relevant, but I had put the money into a Traditional IRA first, and then Converted them to a Roth IRA (March 2019), then removed all of it by April 15 2019.  

[dmertz]

Perhaps it's this custodian's way of indicating that they are not the ones who determined the amount of taxable earnings.  However, in the case were the custodian would normally be able to determine the taxable amount but for some reason are unable to do so for a particular situation, they are to leave box 2a blank and mark box 2b Taxable amount not determined.  The only case where it's proper to include an amount in box 2a and mark box 2b Taxable amount not determined is when reporting a regular distribution from a traditional IRA (in which case box 2a must equal box 1).

[balexh]

Thank you.  And just to be clear, my case is NOT a regular distribution because of the fact that the codes are JP and J8, and the forms state, "removal of excess".  Is that right?  

In this link: https://www.betterment.com/resources/common-tax-form-questions/#16  Betterment says, "A common error for a customer who makes an after-tax Traditional IRA contribution and converts those funds to a Roth IRA (backdoor Roth IRA contribution) is failing to report the contribution and conversion on Form 8606. If a taxpayer does not file Form 8606, the IRS will likely make a conservative estimate and assume the entire amount of the distribution is taxable (even though that may not actually be true)."

I'm confused by this for two reasons: 1) their 1099-R "taxable amount" would still be recorded incorrectly and 2) TurboTax tells me not to include any of the removed excess when I get to the 8606 section in TurboTax. 

From what you've told me I'm actually supposed to contact Betterment for a corrected 1099-R (I'm fairly certain they won't because they're a major brokerage) and then do my own substitute 1099-R if they don't correct it.  Do I have that right?

I really appreciate your help.

[dmertz]

Right.  A regular Roth IRA distribution would have code J, T or Q by itself, and no code 8 or code P present.

Form 8606 has nothing to do with any distribution that has code 8 or code P in box 7.  A Form 1099-R that includes code 8 or code P in box 7 is never to be reported on Form 8606.

Yes, you'll likely need to do a substitute Form 1099-R (Form 4852).

[balexh]

Got it.  Thank you!