Roth IRA

[Tina551]

Vanguard mistakenly put $2,695 into my husband's Roth IRA account instead of regular brokerage account last year. We both retired. The financial adviser sent him a 1099R and asked him to amend his last year's tax return. What form should he fill out and submit to IRS. Should he amend it first prior to file 2022 tax return?

On his 1099R item 7 (distribution code is 8, J). Do they mean anything?

Thanks.

[Anonymous_]

I will page @dmertz. Please check back to see if he has any input.

[dmertz]

If Vanguard mistakenly put the $2,695 into your husband's Roth IRA in 2022 and then later in 2022 processed a return of contribution of that $2,695, your husband correctly received a 2022 Form 1099-R with codes J and 8 in box 7.  The amount distributed would have been adjusted for any investment gain or loss on the amount returned and any investment gain shown in box 2a would be taxable on your 2022 tax return.

I don't see why there is any need to amend your 2021 tax return.  Just enter the $2,695 Roth IRA contribution into 2022 TurboTax, indicate that $2,695 was returned, and enter the Form 1099-R.  TurboTax will prompt for an explanation statement where you'll describe the contribution and its return since the amount distributed can differ from the amount returned due to investment gain or loss.

[Tina551]

Thank you for your reply.

We just realized Vanguard sent my husband 2 X 1099R, one for $5361 (item 7 distribution code is J,P) and one for $2,695 (item 7 distribution code is 8,J). Vanguard moved the money back to his brokerage account. He didn't take any money out from the Roth or brokerage accounts. Both 1099R item 2a show 0 amount.

He just sent an email to Vanguard and asked what years are the 1099R for? If those are for two different tax years item 2a show 0. Do we need to amend them?

[fanfare]

your 1099-R tells you in big numerals what tax year it is about.

[fanfare]

2nd Code 8 is for taxable this year

2nd Code P is for taxable in prior year, i.e. 2021

[Tina551]

2nd Code P is for taxable in prior year, i.e. 2021

Since Vanguard moved the Roth IRA fund ($5,361) to a brokerage account and we didn't receive any money. Line 2a taxable amount is 0.

Vanguard asked my husband to amend his 2021 tax. Do we need to amend it and what form should he submit to IRS?

Thanks.

[dmertz]

Vanguard suggesting amending the 2021 tax return is in regard to the 2022 Form 1099-R with codes J and P.  Any amount in box 2a of this form is taxable on your 2021 tax return and would be the reason that you would need to amend, but since that amount is zero, you do not need to amend (unless your 2021 filed tax return reported an excess Roth IRA contribution on Form 5329 Part IV that now needs to be removed).

It's not clear how much contribution was actually returned with respect to each of these Forms 1099-R because box 1 shows the amount distributed, not necessarily the amount of contribution returned.  If box 2a shows a nonzero amount, you can infer that the amount of contribution returned was the box-1 amount minus the box-2a amount.  However, if box 2a is zero (or, mistakenly, blank), the amount of contribution returned could be more than the amount distributed as a result of investment losses.  Your husband's 2021 and 2022 Forms 5498 would likely be needed to determine the amount originally contributed.

[Tina551]

The following is the reply from Vanguard concerning my husband's 1099R item one gross distribution of $5,361.13 for 2021 and $2,695 for 2022.

"I will provide a blanket statement saying you should consult with a tax
professional on this matter. They will be able to help you file your taxes
appropriately and clarify what information is needed when you go to file. A
tax preparer is also going to be able to help you find out what amount of
tax (if any) is owed because of this excess contribution.
Vanguard does not keep a log for it's clients as to which amount was
considered contributions because every tax payers individual situation is
different, it would be impossible for us to know who decided to deduct IRA
contributions on their tax form versus those who did not. We as well as
other financial institutions leave the contribution figures up to the
individual tax payer to show the IRS.
I am confident that your tax professional that you meet with would be able
to alleviate some of these questions and provide you with good advice to
ensure your taxes are filed properly. "

Is it true, the tax professional can figure out the information and help my husband to amend his 2021 tax return?

Thanks.

[DanaB27]

Yes, a tax professional could help you but there is no need.

As dmertz stated you don't need to amend your 2021 tax return because box 2 is $0 and adding the Form 1099-R  on an amended 2021 return will not change your refund/balance due.

The only exception is, as dmertz stated if you reported that you made an excess contribution on your 2021 and paid the 6% excess contribution penalty. Then you should amend your 2021 return to remove the penalty.  You can check line 25 of your 2021 Form 5329 if you had a penalty.

@Tina551

[Tina551]

I also have a brokerage account with Vanguard and they sent me a 1099 DIV statement which showed item 1a 

the ordinary dividends $1,076 and 1b qualified dividends $1,009. 2a total capital gain distributions is 0, I didn't take any dividends out. 

Since Vanguard didn't issue the 1099DIV for my husband, if they put his investment in the brokerage account in the first place.

Does Vanguard mean the tax professional will figure out the 1a and 1b amount in 2021 tax?

[RobertB4444]

You don't have to withdraw the dividends for them to be taxable.  If you earned them and then re-invested them then they are still taxable.  If the amount on the 1099-DIV was not included in your 2021 taxes then you should amend your 2021 return to include that form.  If it was included then you don't need to amend your return.  

@Tina551

[Tina551]

Since Vanguard only sent my husband a 1099R but transferred the entire amount $5,361 from Roth to brokerage account for 2021. Vanguard reported to the IRS the amendment but didn't issue a 1099DIV to him for $5,361 even though he reinvested it.  Will the tax professional will help him to figure out how much is the dividends from this $5,361 reported to the IRS?

[dmertz]

It's possible that your husband's investment of the $5,361 while in the brokerage account did not earn any reportable dividends in 2022, in which case there would be no Form 1099-DIV.  No part of the $5,361 deposited into the brokerage account was a reportable dividend.

Be aware that financial institutions have until February 15 to issue a Form 1099-DIV if it is issued as part of a consolidated reporting statement.

[Tina551]

My question to Vanguard is when they mistakenly invested his money into Roth IRA,  it should earn dividends too. When they transferred the money to a brokerage account, are they supposed to separate how much was the original contribution and how much were the dividends from this Roth IRA account even though they moved the entire amount to brokerage account?

Vanguard stated they won't issue a 1099DIV and asked us to see a tax professional who will figure it out for us. Is it correct?