one 1099-R with 2 years of removal combined, what is the best way to handle it

[sparky8]

I contributed to my roth ira for 2020 and 2021 in Feb (2021). Later on, I figured out that I am not qualified to contribute for both years, so I requested removal of excess. My broker told me that I will receive one 1099-R next year for all the removals together. I guess I have two options to deal with it:

a: report my removal of excess for 2020 by creating substitute 4852

b: wait until next year to file them all together

If I go with option a, then NEXT YEAR I will run into problems. Because next year, I will have a 1099-R with both years info on it. I will of course only report 2021 portion, but, will this cause problems since 1099-R is going to be inconsistent with my filling. 

If I go with  option b, could someone tell me how to report 2 years of removal all at once in turbotax? Will I pay extra tax for 2020 portion?

Thanks in advance for any help!

[DanaB27]

Yes, the earnings will be included in your taxable income and if you are under 59 1/2 then you will have to pay the 10% early withdrawal penalty on the earnings. 

Since you made the contribution to the Roth IRA in 2021 but it counted as a 2020 contribution, and withdrew the contribution in 2021 you will get a 2021 1099-R in 2022 with codes 8 and J. You will report all of it on your 2021 tax return. You do not need to create a 1099-R for 2020.  You only need to create a 1099-R with code P and J if you made excess contributions in 2020 that you withdrew in 2021.

Please see IRA reporting: Excess contributions for additional information.

[sparky8]

@DanaB27 Sorry I just saw your note now. Somehow I was not notified a response. First of all, thank you so much for taking time trying to help. 

So, are you implying that my option A is not valid,  since I made contribution in 2021? I was planning to go with option A, now seems like you don't think it is good idea?

Thanks!

[DanaB27]

Since you made the contribution in 2021 for 2020 the custodian will send you a 2021 1099-R with codes 8 and J in box 7 (but you can double check with them) and this would have to go on your 2021 return.

If you get a 2021 1099-R with codes P and J in box then this will go on your 2020 return. You could included it on your return without using a substitute 1099-R:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2020?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter P and J 
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

[sparky8]

@DanaB27 I see! Thank you so much for the details! I will check with my custodian.