Reporting Excess SEP IRA Contribution

[samrylewin]

I contributed slightly in excess of my SEP-IRA limit in 2020 and then recharacterized the excess (plus all earnings on it) in 2021. Since I do not yet have a 1099-R - I will only get one in 2022 - I am wondering how to enter this into Turbo Tax for my 2020 taxes.

[RayW7]

Yes you will receive a 1099-R from the financial institution once you withdraw the excess contribution.  The 1099-R for the withdrawal will have the year 2021 on it since you did not withdraw the funds until 2021.

If you withdrew the excess contribution in 2021 and you have not yet filed your tax return, you can report the withdrawal so you are not charged the 6% penalty for 2021.  

To report the withdrawal you create a substitute 1099-R

• You would enter the 1099-R with the total distribution in box 1 (the contribution plus the earnings),
• The earnings in box 2a,
• Enter code "P" in box 7 (Top) - don t worry that it will say "taxable in 2016 "
• Enter code "J" in box 7 (Bottom).
• On the "Which year" screen say that this is a 2020 1099-R.

[dmertz]

Code J has nothing to do with a SEP-IRA.  Code J only applies to distributions from Roth IRAs.  Perhaps RayW7's answer can be applied by omitting the code J, or, if you are under age 59½, using code 1 instead of code J.

[samrylewin]

Thanks, this is helpful. Should I still report the full SEP contribution for 2020 (including the excess)? Also, should I still enter the 1099-R on my 2021 taxes when I receive the form in 2022?

[samrylewin]

@RayW7  I should categorize this as a 2020 1099-R even though I recharacterized the excess contribution in 2021, correct?

[DianeW777]

Yes, that is correct to characterize the substitute 1099-R as though it is for 2020.

No. For your previous question, you will enter the correct SEP-IRA contribution you were allowed to make.  Do not include the amount you did withdraw timely.  By adding the 1099-R you are including the required interest/earnings amount on your 2020 tax return.

Excess withdrawn by April 15.

If the employee takes out the excess deferral by April 15, 2021, it isn't reported again by including it in the employee's gross income for 2021.

However, any income earned in 2020 on the excess deferral taken out is taxable in the tax year in which it is taken out. The distribution isn't subject to the additional 10% tax on early distributions. If the employee/self-employed takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. 

• IRS Publication 560

[Frahimzadeh62]

I had the Excess for the 2021 year only for a few days in my Sep IRA. I have requested from my bank to withdraw the excess before Apr. 15.

I fixed the eligible amount for Sep Ira on my 2021 tax return deductions. 

Do I still have to fill out 1099_R?