What if I don't receive 1099-R in time to file taxes after withdrawing excess Roth IRA contribution ?

[ahmadka2]

I just realized I have contributed too much to my own and my wife's Roth IRA for 2020. I understand I can remove the excess amount and earnings before filing 2020 tax return, in which case there won't be penalty for the excess contribution (only taxes and penalties on the earnings because of early withdrawal).

But my question is this: With only a month like the tax filing deadline, what if I remove the excess contributions now but still don't receive the 1099-R forms for both Roth IRA accounts in time to file them with 2020 tax return ? What to do in that case, or what is the solution in this case ?

[DanaB27]

Yes, if you withdraw the excess contribution plus earnings before the due date of your return then you will not have to pay the 6% penalty for an excess contribution. 

You will get a 1099-R 2021 in 2022 with codes P and J for the withdrawal of excess contribution and earnings. This 1099-R will have to be included on your 2020 tax return and you have two options: 

• You can wait until you receive the 1099-R  2021 in 2022 and amend your 2020 return or
• You can report it now in your 2020 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or box 14 State withholding. Then you must enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021.

To create a 1099-R in your 2020 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the Search box on the top 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 2 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.

[ahmadka2]

@DanaB27 thanks for your reply. If I understand you correctly, I think you're saying that if I sell off the excess contributions plus earnings, then the 1099-R reflecting this activity will be reported in the 1099-R I receive in 2022, for 2021 return. But if I don't want to deal with tax filing amendments, then I can just file a 1099-R with my 2020 return showing this activity, even though I didn't technically receive a 1099-R this year for 2020 return. Is my understanding correct here ? If yes, isn't this sort of misleading because I'm saying I got a 1099-R even though I didn't ? Also, from IRS's point of view, won't this cause confusion even I'm reporting a 1099-R even though they didn't receive a 1099-R from my brokerage for my ROTH IRA account ?

[DanaB27]

Yes, if you want to avoid having to amend your 2020 return because you have to wait for the 1099-R then you can create the 1099-R while filing your 2020 return.

No, it won’t be misleading for the IRS because the 1099-R that you create and will get in 2022 will have the code P and J. The code P indicates that it has to go on the previous year return. Therefore, a 1099-R 2021 with code P will have to go on the 2020 return.

[ahmadka2]

Thanks for your answer but I'm a little confused on the meaning of the 'P' code you're mentioning.

If I sell my 2020 ROTH IRA excess contributions and earnings now (in 2021), and then get a 1099-R in 2022 with the code 'P' mentioned on it, won't it mean it's for the 2021 tax return filing since I received it in 2022 ?

Also in what case would a 1099-R NOT have the code 'P' on it ?

[DanaB27]

No, a P code on a 1099-R 2021 received in spring 2022 belongs on the 2020 tax return.

If you had taken the excess contribution plus earnings out in 2020 then you would have gotten a 1099-R 2020 in spring 2021 with codes J and 8 and it would go on your 2020 tax return

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."

[ahmadka2]

@DanaB27 Thanks for your answer.

Also I have some concerns about reporting the earnings. How are they calculated ?

In my case, I actually started my Roth IRA in 2020 to make things simpler here. I contributed $6k in my Roth IRA in 2020, turns out all of which is in excess due to my high income. Now in 2021, the value of that account is $6789 (example value) as of today. So if I sold off everything and did a withdrawal of $6789 to my bank account, is my earnings = $6789 - $6000 = $789 ? Or is it calculated some other way, perhaps based on the value of the account on the last year of 2020 perhaps or something ? Or do I need to look up the value of the account in my Form 5498 ?

Also what if I don't have a Form 5498 yet from my broker, since they can come later too ?

[DanaB27]

When you request a withdrawal of excess contribution plus earning with your bank then the bank should be able to tell you how much the earnings were. Please make sure that you request a withdrawal of excess contribution plus earnings so the 1099-R will be coded correctly.

Yes, in your example, if you get $6,789 return to you and your excess contribution was $6,000 then the $789 would be the earnings.

[laquan]

Hi DanaB27,

I removed a $7,000 excess 2020 Roth IRA contribution plus earnings on 1/4/21.  I had Federal and state tax withheld.  Your response to the original question in this thread was that the 2021 1099-R (which I will receive in 2022) must be reported in the 2021 tax return since the withholding is reported in the year that the tax was withheld.  I am unclear as to what/when I should report on my 2020 and/or 2021 returns:

1)  Should I report the $7,000 Roth IRA contribution on my 2020 return regardless of whether the removal of excess plus earnings is reported in the 2020 or 2021 return?  Or should the 2020 contribution be reported in the same return as the removal of excess is reported?

2)  Given that I had Federal and state tax withheld in 2021 for the 2020 contribution, am I able to report the return of excess contribution plus earnings on my 2020 return, calculate and pay my 2020 taxes due on the earnings as if no amounts were withheld for taxes, and then use the withholdings to offset taxes due on my 2021 tax returns?

3)   Given that the withholding amounts are already known, if your suggestion is to report the removal of excess on my 2020 return, should I include the Federal withholding in Box 4 and the state withholding in Box 14?

4)  If I can report the removal of excess in my 2020 return, should I or should I not select "I need to prepare a substitute 1099-R."?  

5)  If your advice is to wait until I prepare my 2021 tax return to report the removal of excess, would I then need to amend my 2020 tax return?  If so, what steps would I need to perform in TurboTax to amend the return?

Thanks very much!

[DanaB27]

1)Yes, you will enter the Roth contribution on your 2020 return but on the penalty screen you can enter the amount of excess contribution you removed.

Yes, you need to report the withdrawal of excess contribution and earnings on your 2020 return. You can do that now or you can wait until you get the Form 1099-R 2021 in 2022 with code P and J and amend your 2020 return then.

If you want to included it now then you enter it like this on your 2020 tax return:

1. Login to your TurboTax Account 
2. Click on the Search box on the top 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 2 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.

2) Yes, your withholdings will be entered on your 2021 return since it is a 1099-R 2021. You will enter it on your 2021 tax return and because of the code P TurboTax will know to ignore the distribution but will carry the federal tax withheld to line 25b and the state tax withheld to you state return.

3) No, you will not enter the tax withholdings on your 2020 tax return when you create the Form 1099-R to report the withdrawal of excess contribution plus earnings. The withholdings belong on your 2021 tax return.

4) No, do not select substitute 1099-R.

5)Yes, if you wait until you actually receive your Form 1099-R 2021 in 2022 then you will have to amend your 2020 tax return to include the Form. Please see How to amend (change or correct) a return you already filed. You will also enter the Form on your 2021 tax return to get credit for the taxes withheld.

@laquan

[Harleygirl]

When selecting code P in 2020 Turbotax it reads, "P-Return of Contribution Taxable in 2019," even though I later selected this as a 2021 1099R.  Will this be confusing because it should say taxable in 2020? I don't see any way to change it.

[DanaB27]

No, this is fine since you are selecting that it is a 2021 1099-R on the next screen. By selecting 2021 "Which year on Form 1099-R" screen TurboTax will calculate it correctly.

@Harleygirl 

[ahmadka2]

@DanaB27 can you give some IRS guidance reference which states or at least suggests that it's okay to report a 'dummy' 2021 1099-R now, even though I'll actually receive it next year ?

I know doing the above is to your suggestion to avoid having to file an amendment for the 2020 tax return which obviously I'll prefer. But having said this, I cannot find any IRS specific guidance which approves reporting a not-yet-received  20211099-R proactively like this, just to avoid having to file an amendment next year.

[DanaB27]

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."

Therefore, if you know your earnings then you can report the earnings already on your 2020 tax return without having the 1099-R and avoid having to amend your 2020 tax return in 2022.

[ahmadka2]

Thanks for your reply, however in my opinion that excerpt from IRS can really be considered true for both situations in dealing with the 1099-R situation here. In other words, whether I add a 'dummy' 1099-R now before I've actually received it, OR I wait to actually receive it next year and then report it via an amendment for 2020 tax return, it's still being reported for the earnings on excess contribution made in the original year of the contribution (2020 in this case). Thus in my opinion, this excerpt doesn't specifically say anything about whether it's okay to report a 1099-R now before I've actually received it or not.