I over-contributed in 2021, meaning I contributing abour $2k over the $7k limit to my Traditional IRA, for a total contribution of about $9k. I correctly deducted $7k on my 2021 return, and then after I filed my 2021 return in April 2022, I realized that I over-contributed by about $2k. I was also contacted by the brokerage asking me to resolve when they noticed I went over the max. Yes, it's a Mickey Mouse brokerage, because any major brokerage would have not allowed it by some rudimentary programming. So I calculated the NIA , which was a loss (-$400), and told them to distribute the difference ($2,000-$400=$1,600) back to me. I have come across answers to others' similar questions which talks about filing an amended 2021 return, however I'm not sure that is the fix in my case, because I only claimed the $7k as my Traditional 2021 contribution, which was correct. The brokerage issued my 1099-R with a distribution code "P". Can someone tell me how to enter this $1,600 distribution on TT, and whether I do or do not need to amend my 2021 return? Thanks in advance!
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what you should have done was to report the 9K contributed and the excess withdrawn
if you remove the contribution:
a) Before your taxes are due and before filing your return: You avoid the 6% penalty. You should have included Form 5329 with your filing to reflect that the withdrawn contributions are no longer treated as having been contributed. If the excess generated any earnings, you’ll need to remove them and include them in your gross income.
b) Before your taxes are due but after filing your return: You can avoid the 6% excise tax. You will need to file an amended return within six months of the original return due date (generally by October 15). Write “Filed pursuant to section 301.9100-2” at the top of Form 1040X. If the excess generated any earnings, you’ll need to remove them and include them on your gross income.
you file the 1099-R with the 2022 return use the code P and leave the line for taxable amount blank. there is no tax and no penalty
You can ignore this code-P 2022 Form 1099-R because it is already reflected correctly on your 2021 tax return and there is no taxable amount shown in box 2a. Your 2021 tax return should have included an explanation statement regarding the return of contribution, but there is no point in providing that now unless the IRS asks you for it.
Your 2021 Form 5498 should show $9,000 in box 1 to substantiate that after the return of contribution reported on the 2022 Form 1099-R you still have a $7,000 contribution for 2021.
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