2020 IRA contribution was submitted as 2021. I was told by bank that it's to late to change it to 2020. Need to amend 2020 taxes. Do I deposit IRS refund or wait?

[ftrenary]

I'm still holding on to the hope I can get my 2020 IRA contribution fixed but doubt it's going to happen.
I started my amended return. TurboTax shows that I will owe taxes for both federal and state. It's several hundred dollars for each one. Is this based on my current refund? Can I deposit my refund and use it to pay my taxes?

[Opus 17]

Any changes are based on your original tax return being correct and any refund that you claimed being paid without adjustments.  So what you owe on the amended return is "net" after your first refund is paid.

Wait to file the amended return until after your first return is processed and the refund paid, in case the IRS makes changes.  Then you can go ahead and file the amended return, if you file by October 15, you should be able to file online, which will be more secure than mailing the amended return.  Make your payment separately at www.irs.gov/payments and select "amended return" as the reason.  You may owe interest on the amount due retroactive to the May 17, 2021 deadline, so paying when you file will reduce the amount of interest you owe, instead of waiting for the IRS to process the return and take a payment, which could take 6 months or longer.

The key point in your situation is, did you specify 2020 and the plan trustee applied it wrong, or did you forget so it went in as 2021 by default?  If you forgot to specify 2020, you can't fix it after May 17, 2021.

[rjs]

Yes, you can, and should, deposit the refund that you received, and you can use it to pay what you owe on the amended return. The amount you owe on the amended return is repaying part of the refund that you received.

[fanfare]

you can also, if necessary or desirable, before the due date of your return, have the custodian withdraw your contribution for 2021 and return your money plus any earnings  to you.

[fanfare]

" Is this based on my current refund?"

your current refund must appear on your form 1040-X for things to work out correctly.

[ftrenary]

Opus 17,

In regards to this statement - "did you specify 2020 and the plan trustee applied it wrong, or did you forget so it went in as 2021 by default?" Is there something official I (like an IRS publication) I can send to Merrill Lynch about this? They flatly told me that nothing can be done now that it's after May 17. I chose 2020 for my IRA contribution and it registered as 2021 and then their website wouldn't let me change it to 2020 when it was still May 17th. I have screenshots from my computer showing the date as May 17th. In a way the Merrill Lynch website was functioning as my plan trustee. It got the year wrong and when I tried to have it correct that mistake it wouldn't do it. I know it's a long shot but I feel it's worth a try.

Thank you...

[Opus 17]

@ftrenary 

There is another user who may have much more information on recourse options than I do.

@dmertz 

Your situation is not clear because you have not specified the dates or exactly what it is that you tried to do.  Most plan trustees require several business days to process requests to deposit or withdraw funds. If you initiated a request on or close to May 17, there may be have been no way for it to be processed before midnight on May 17, and so it would be recorded as a 2021 contribution made on the 18th or 19th.  Your account agreement should include information about payment processing times.

On the other hand, if you made a contribution on January 5, and then noticed on January 10 that it had been processed for 2021 instead of 2020, you would have had five months to have notified the plan custodian, and you would presumably have a chain of emails or records or phone calls that you made to try to straighten things out.

Without knowing more about your exact situation, I don’t know what your recourse options are. If you can prove that you made a timely contribution—including leeway for any lag that was specified in your plan agreement—and if you can prove that you made a timely notification to the plan trustee that they had processed your contribution incorrectly, then I would presume you have grounds to escalate your case and have the transaction re-characterized.  If you get to a senior account manager and they do not agree with your position, you may have no other legal recourse than to file a lawsuit, which may not be worth it, or to move your funds to another plan custodian (by rollover) if you are unhappy with their customer service.