Withdrawing excess contribution for 2019

Forum|Forum|5 years ago
March 9, 2021
1 reply
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I just got my 1099-R form from Vanguard for 2020 and it shows 6000 in Box 1 and 1P in Box 7 which means it is an early distribution before 59 1/2. Box 2b is also checked (taxable amount not determined).
Turbo tax does not include that in my taxable income or calculate any tax on it when i upload the statement.
Actually this was my traditional IRA contribution for 2019 and I realized that I am not allowed to do a deductible IRA. I checked with the broker's representative that i may want to convert it to Roth (backdoor) but if could withdraw it then and would it have any impact. She said that she can revert the transaction as I was not eligible for a deductible IRA and therefore i got the money back in my bank account. I had 5.09 of gain on that contribution so that was also paid to me.
How do i report this to the IRS in my 2020 tax return. Do I have to pay early withdrawal tax on the 6000 contribution ? Is 1P the right code if it was a mistake to deposit that money in IRA?
Do i need to fill form 5329 and if yes then would it be for 2020 and would it show the 6000 or just 5.09 and if yes, in which section?
Thanks for your help.

ThomasM125

Level 15

The code "P" means the distribution belonged on your 2019 tax return, so it won't affect your return for 2020.

You need to amend your 2019 tax return and enter the distribution on that tax return. To report the earnings on the excess contribution, you should enter a Substitute form 1099-R and enter it on your amended return. You will see an option for this when you see the screen Tell us Which 1099-R You Have.

Enter in box 1 the distribution amount. In box 2 enter the earnings. Enter code "P" and "J" in box 7. Work through the questions in TurboTax after you entered the 1099-R until you see a question regarding why you made the distribution, to which you will respond it was a return of an excess contribution.

Code "P" is the right code. You will pay a 10% penalty, but only on the earnings. You will have a form 5329, that TurboTax will generate automatically.

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goyal_rajAuthor

Level 5

Thanks for your reply. So Do I need to got to the 2019 Turbo tax program and enter 1099-R there even though i received the 1099 form for 2020?

Which documents should i send with my 2019 amendment? Form 1040 amendment (no change to the numbers i think), a 5329 and anything else?

DanaB27

Level 15

Yes, you need to amend your 2019 tax return to include the Form 1099-R 2020 because of the code P. Please see How do I amend a 2019 return in TurboTax? on instructions how to start your 2019 amended return. You will have to send the Form 1099-R, Form 1040X, and any Forms that changed: 5329, Schedule 2 and the new 1040.

The IRS states:

"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, the earnings on the 2019 excess contribution have to be reported on your 2019 return.

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