excess contribution withdrawal generating a 1099-R for tax year 2021 - IRA custodian time limit for 2021 1099-R

[ira_query]

I need to make a "Remove Excess Contribution" distribution from my Traditional IRA due to an ineligible rollover that occurred in 2021. I understand that the earnings due to those funds must be calculated and reported on the 1099-R as taxable income for tax year 2021. (The original rollover amount will not be taxable as long as it's removed by April 18, 2022.) How long does my Traditional IRA custodian have to send to me (and the IRS) the 2021 1099-R for this distribution?

[fanfare]

You won't get a 1099-R until January 2023, and if you wait for it you will have to amend your 2021 tax return.

(UNLESS you are due a refund and decide to wait another year to file your 2021 return, most would not go down that path).

Much better to get the earned income amount from the financial institution and find a way to include that amount on Form 1040 Line 4b before you file 2021 tax return.

If the earnings are negative, enter zero so there is nothing to do.

Note: TurboTax doesn't make this easy for you if you want to e-File.

[ira_query]

Thanks very much, that's exactly what I was worried about. I have another IRA distribution (with a 2021 1099-R) and it would be very easy to simply add the amounts for the two distributions on lines 4a and 4b, but then the amounts won't match (my reported numbers will be higher than what the IRS has). It seems I'd have to do my taxes with the "IRS fillable forms" then? Or is there any way to get Turbotax to add some income in those lines that doesn't come from a 1099-R?

[fanfare]

 is there any way to get Turbotax to add some income in those lines that doesn't come from a 1099-R?

I don't think so.

it would be very easy to simply add the amounts for the two distributions on lines 4a and 4b

That's what I would do, It is only the form 1040 that matters.

In fact, your return is correct if you do that, and incorrect if you don't (hence the need to amend).

is there any way to get Turbotax to add some income in those lines that doesn't come from a 1099-R?

If there were, or you mailed a return with an override, wouldn't the 1099s still mismatch, and wouldn't that bother you also?

[ira_query]

Sorry, I should have added more info on my last reply. Due to inheritance in 2021 I will have a substantial tax bill for 2021. So my guess is I should:

- pay what I owe before April 18 without filing my 2021 return

- file for extensions (multiple?) so that I don't file my 2021 return until January 2023. (I've never filed for extensions before, no idea on rules on that.)

I'm thinking this now because if I file now, the missing 1099-R will cause me to probably have to amend my 2021 return anyway once it arrives (ironically the earned interest calc is simple, easy, precise and only a few dollars and so it's a big mess for a few bucks) but why not just wait and file 2021 once I have all the needed docs a year from now?

[fanfare]

I your are not due a refund,

you have to file by the extension date ( October 15, 2022).

The point is, if you report the earnings now, you can toss the 1099-R that comes later since you already included it.

If it is only a few dollars difference, what are you concerned about ?

[fanfare · Accepted solution]

The other option is to not do anything, and not amend next year.

IRS is not going to audit you for a few dollars.

[ira_query]

OK, no extension possible beyond October, and we're talking about approx. $2 in additional taxes, so it looks like I need to just forget about this 1099-R. Thanks very much, this has been very helpful.

[ira_query]

"The point is, if you report the earnings now, you can toss the 1099-R that comes later since you already included it."

But HOW? It's easy to create a 1099-R in Turbotax for a 1099-R that I don't physically have, but taxpayers are NOT supposed to do that.

[RobertB4444]

The IRS matches the documents to your tax return.  There is nothing wrong with adding money to your tax return that the IRS doesn't have.  But they frown greatly upon forgetting to add money that is supposed to be there.  

So if you add the 1099-R to your return it won't cause you any problems.  Unless the 1099-R shows up next year and then isn't included on your 2022 return.  You need to make sure that the returns match the documents that the IRS has.  If the 1099-R that you're getting is dated 2021 when it shows up then adding it to your 2021 return now is fine.  But if it shows up dated 2022 then you have issues.

[dmertz]

The return of contribution will be reported on a 2022 Form 1099-R that will include code P in box 7 to indicate that it is reportable and taxable on your 2021 tax return.  You can either make the entry of this Form 1099-R into 2021 TurboTax as if you have already received the form or you can omit it from your originally filed 2021 tax return and amend your 2021 tax return to add it when you receive this Form 1099-R in January 2023.  You only need to do this if there are gains attributable to the contribution being returned.

[fanfare]

@dmertz 

" make the entry of this Form 1099-R into 2021 TurboTax as if you have already received the form"

If you do that Code P will result in no effect on your 2021 tax return.

[RDD66]

Do I need a corrected W2 if my employer grossly over contributed to my 401k?  I've already received a 1099-R.

[ira_query]

No, I thought it was the opposite, Code P (for a distribution done in 2022 to remove excess for 2021) is for tax year 2021. (It would be code 8 (eight) that would be for tax year 2022.) In fact, I can find an earlier reply on another thread where (I think it was pmertz) told me this.

I have a "dry run" copy of the bank form, which does not explicitly list the distribution code but does list the tax year, which is 2021. If the bank does their job right, this will translate into a tax year 2021 1099-R, with a distribution code of P and distribution amount including the interest and a taxable amount of only the interest. I didn't sign the dry run form because the bank didn't include the interest. Next time I'll insist on all of that, including tax year 2021. But it's also true that all I'll have is the bank form, I won't have the 1099-R until January 2023.

[dmertz · Accepted solution]

@fanfare , when you enter into TurboTax a Form 1099-R that includes code P in box 7, TurboTax asks what the year of the form is.  Answering 2022 in 2021 TurboTax causes 2021 TurboTax to treat the box 2a amount as taxable and potentially subject to an early-distribution penalty.  Only if one mistakenly indicates to 2021 TurboTax that it's a 2021 Form 1099-R would TurboTax ignore it.

Note that one should almost never have taxes withheld from such a distribution.  Tax withholding on a 2022 Form 1099-R that includes code P in box 7 would have the box 2a amount taxable in 2021 but the tax withholding would apply to 2022.