Roth IRA

[fanfare]

if the mistake was discovered quickly, there was no time for the funds to make any earnings.

hence, taxable amount  = zero.

you don't have to amend 2021 tax return.

@Tina551 

[dmertz]

Any gains while the funds were in the Roth IRA, no matter how the gains are generated, are treated as ordinary income.  The gains do not retain any character of having been derived from dividends or capital gains.  For this reason, Forms 1099-DIV are never issued for any activity within an IRA.

[Tina551]

I pulled out my husband's 2021 1040 and tried to amend. Turbo tax shows a list and asked which item I need to amentd. Should I clicked on edit 1099R or 1099Misc? How can I find the 5329 form on Turbo Tax (part IV) adiitional tax on Excess Contribution to Roth IRA? Thanks.

[MarilynG1]

Yes, if you received a new 1099-R from your financial advisor for 2021, you should probably add the new 1099-R in that section when amending.  It may have a code indicating it was a removal of excess Roth IRA contributions.

If you saved a copy of your 2021 tax return 'with all forms and worksheets' you should have Form 5329 in your original saved copy. 

You may no longer see the form after you Amend, if the penalty is removed. 

[Tina551]

I don't have a 5329 on his 2021 tax return because my husband didn't know Vanguard put his contribution into Roth IRA by mistake. The money should go to brokerage account. Item 7 distribution code on 1099R is J, P.

If I amend his 2021 tax return and add this 1099R, indicates the code J, P, will this create a 5329? Thanks.

[Tina551]

I have another question on Vanguard 1099R. Item 7 Distribution Code: J - early distribution from a Roth IRA

Code P - return of contribution taxable in 2020. Is that means we need to amend the 2020 tax return?

I retired on 12/31/2020 and I had earnings for the entire year. My husband should be able to contribute to his Roth IRA account up to $6,500.00. On their 1099R item 1 gross distribution is $5,361.13.

I don't understand why Vanguard told us to amend the 2021 tax return but the code P is for taxable in 2020.

Did they made a mistake or I understood wrong? Thanks.

[DianeW777]

A 5329 will not be generated if there were no excess contributions.  They were removed timely and you indicated the taxable amount on the Form 1099-R is zero (box 2a).  It's not yet clear of the year printed on your Form 1099-R(s).

There is nothing to amend since the money was removed and there were no earnings to report or pay excise tax on (Form 5329).

As indicated by @dmertz and @fanfare, based on your comments there is nothing to amend for 2021.  Dividends in a Roth IRA will not be reported on Form 1099-DIV at any time.  Distributions will only appear and be reported on Form 1099-R.  Only your regular brokerage account will report dividends earned.

The code descriptions you requested are:

8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2022.  (If there is any taxable amount in Box 2a.)

J—Early distribution from a Roth IRA, no known exception (in most cases, under age 59½).

[Tina551 · Accepted solution]

On Turbo Tax software show code 7 distribution code P is for return contribution taxable in 2020 instead of taxable in 2021. Is it because I am using the 2021 turbo tax software to amend the 2021 return?

Also asked me 1099R form shows 2021 or 2022. Since Vanguard form shows 2022 1099R even asked us to amend the 2021, should I click on 2022? Thanks.

[dmertz · Accepted solution]

The text in 2021 TurboTax assumes that you are entering a 2021 Form 1099-R.  Because you are entering a 2022 Form 1099-R code P means taxable in 2021.  In other words, code P actually means taxable in the year prior to the year of the form, but that wording is too complicated for TurboTax's selection box.

When entering a 2022 Form 1099-R and TurboTax asks what year is on the form, answer 2022.