How to report withdrawal of excess IRA contribution for 2019

[goyal_raj]

Checked with Vanguard again and after multiple rounds of back and forth with their tax dept they tell me that since the earnings accrued in 2020 (even though the contribution was for 2019) the code shall be 81 only and it is taxable in 2020. If it accrued in 2019 then it would be for 2020. I told them about IRS publication 590A.

What choice do i have now? Go with what VG says or add a substitute 1099R with the earnings on 2019 tax return? And in which year do i send the 5329?

Thanks,

[macuser_22]

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@goyal_raj wrote:

Checked with Vanguard again and after multiple rounds of back and forth with their tax dept they tell me that since the earnings accrued in 2020 (even though the contribution was for 2019) the code shall be 81 only and it is taxable in 2020. If it accrued in 2019 then it would be for 2020. I told them about IRS publication 590A.

What choice do i have now? Go with what VG says or add a substitute 1099R with the earnings on 2019 tax return? And in which year do i send the 5329?

Thanks,

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That is the rules for a 401(k) type plan.    I quoted the actual IRS rules for reporting the earnings for an IRA.

Did you ask them if they think this is a 401(k) type plan and not an IRA?

I would ask for their discussion in writing so if the IRS challenges the incorrect reporting, you would have their answer in writing to send the IRS.  

[goyal_raj]

Yes, I have sent them an email to confirm.

So if I follow the code on the broker statement, i would add my gains to 2020. How do i get the 5329 then for 2020 and would it show just that gain of 5.09?

And do i need 5329 for 2019 also? I could not generate it in Turbo tax if enter just the 6k contribution.

Thanks,

[macuser_22]

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@goyal_raj wrote:

Yes, I have sent them an email to confirm.

So if I follow the code on the broker statement, i would add my gains to 2020. How do i get the 5329 then for 2020 and would it show just that gain of 5.09?

And do i need 5329 for 2019 also? I could not generate it in Turbo tax if enter just the 6k contribution.

Thanks,

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There will not be any 5329 at all the way the 1099-R's are unless you are under age 59 1/2 then the $5.09 would be subject to a 10% penalty.   (51 cents).  

[goyal_raj]

Thanks. I am under 59 1/2. So i guess i need a 5329 for 2020 then.Right?

[DaveF1006]

Yes, there may be a 5329 filed with your return that will report that .51 penalty.  

[goyal_raj]

Thanks for your reply.

How do i generate the 5329 from Turbo tax then?

If i do it manually should i just enter 5.09 in line 1 on the 5329? and then calculate the .51 penalty?

[macuser_22]

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@goyal_raj wrote:

Thanks for your reply.

How do i generate the 5329 from Turbo tax then?

If i do it manually should i just enter 5.09 in line 1 on the 5329? and then calculate the .51 penalty?

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No.  You enter the 1099-R and TurboTax will create the 5329.   The penalty will be $1.00 because all numbers are rounded to the nearest dollar.

[goyal_raj]

No it does not generate a 5329 for 2020 even though it added that income in my taxable income. How do i get it to generate one?

Thanks,

[macuser_22 · Accepted solution]

The 5329 is not required  if all 1099-R's have a code 1 - it simply  goes  on  the 1040 Schedule 2 line 6.

5329 instructions:

You received a distribution subject to the tax on early distributions from a qualified retirement plan (other than a Roth IRA). However, if distribution code 1 is correctly shown in box 7 of all your Forms 1099-R and you owe the additional tax on the full amount shown on each Form 1099-R, you don’t have to file Form 5329. Instead, see the instructions for Schedule 2 (Form 1040 ), line 6, in the instructions for Forms 1040 and 1040-SR, or Form 1040-NR, for how to report the 10% additional tax directly on that line.