Taxation of an IRA distribution made to correct a deposit made to a traditional IRA with previously taxed by PA funds.

[Locator2020]

Pa State Income tax. 

Prior to April 15, 2019, my financial advisor suggested that I fund a Roth IRA.  He opened a new account for me but he made a mistake and opened a traditional IRA.  I didn't notice the mistake and deposited $6500 from my checking account into the new account.  These funds were previously taxed.  My advisors office staff caught the mistake and made a distribution of $6,502.18 to correct it.  My 1099-R shows a gross distribution of $6,502.18 [box 1].  Box 2a Taxable amount shows $2.18.

Turbo Tax is showing the entire amount as taxable on my PA state return.

How do I fix this

[macuser_22]

What code is in box 7?

[Locator2020]

Box 7 is code 8.

I also do not understand how an IRA distribution is taxable in PA.  PA does not allow a deduction for IRA contributions.  IRA contributions are taxed as income in PA.

[macuser_22]

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@Locator2020 wrote:

Box 7 is code 8.

I also do not understand how an IRA distribution is taxable in PA.  PA does not allow a deduction for IRA contributions.  IRA contributions are taxed as income in PA.

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A code 8 is a "return of contribution" and should be treated as if the contribution never happened in the first place.

Only the box 2a (the earnings that were also returned) is taxable an should be on the 1040 form line 4b.

If you previously entered the $6,000 contribution in the IRA contribution section - remove it since that contribution was returned and never occurred.

I don't know about PA but I suspect that the contribution was not removed from the IRA contribution section.