Roth IRA excess Contribution and 1099 R

[sharonenoch]

Hello,

Need some help understanding if the 1099R form is correct.

We contributed excess to Roth in Year 2020 for 2 separate accounts. We are both UNDER the age 59 1/2.

Account 1: excess of 4800$ and earnings of 728$ and

Account 2: excess of 6000$ and earnings of 1944$ .

Realizing that at the end of Dec 2020, we filed the form to withdraw the excess and the earnings for both accounts in Jan 2021 and the withdrawal was complete by Feb 2021 which was before the April 2021 tax deadline to avoid the 6% penalty. We did not mention anything in the 2020 tax return and instead opted to wait for the 1099-R which was sent in Jan 2022.

Now Jan 2022 we get a 1099-R for both the accounts.

Account 1 : Shows the code as 8J   (Taxable in 2021 return),

Account 2 : Shows the code as PJ   (Taxable in 2020 return).

The columns 1 and 2a in both forms are accurate.

My understanding was Account 1 codes should have also been PJ instead of 8J.

Why would they give a code 8J to be taxable in 2021 return, as excess and earnings were withdrawn Feb 2021, before the tax deadline of April 2021. I thought that would also be taxed on the 2020 via an amended return

[DanaB27 · Accepted solution]

Yes, if Account 1 was an excess contribution for 2020 and you requested to remove the excess plus earnings in 2021 before the due date then the earnings should be taxable in 2020. therefore the code in box 7 of your Account 1 1099-R should be PJ.

You might want to check with your financial institution why they used the code 8J for Account 1.

The IRS states:

How to treat withdrawn interest or other income.

You must include in your gross income the interest or other income that was earned on the excess contribution. Report it on your return for the year in which the excess contribution was made. 

[sharonenoch]

Thanks.. Yes I also read up further and understood that 8J only makes sense if I had removed the contribution in 2020 itself instead of 2021..  Since I removed it in 2021 they had to give it as PJ..

I had a call with them yesterday morning and they verified and seem to have accepted that it is an issue and they have to review it with the person who filled up the form and send me a corrected form in few weeks.. Your reply further confirmed what I had also learnt

@DanaB27 

Now the confusion I have though is if they have already sent this wrong form to IRS, and they give me a new corrected form.. which I would file in the 2020 amended return..

Should I just ignore the original wrong 1099R which denoted that it had to be filed in the 2021 return? 

[DanaB27]

Yes, you will ignore the original wrong 1099-R since the IRS will receive the corrected 1099-R and know to ignore the wrong original one.

Once you received the corrected 1099-R you will be able to start to amend your 2020 return.

[sharonenoch]

Thankyou @DanaB27