Overcontributed to a Roth IRA in 2021, a corrective distribution was made in 2022 prior to filing the 2021 return. I received a 1099-R in January 2023 for the distribution (at a loss given the current environment). IRS website says:
"Withdrawal of excess contributions. For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year
is treated as an amount not contributed.
This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made."
Question: Can I ignore the 1099-R given the text in red above? Also, the loss is minimal on the contribution, so I'd prefer not to amend the prior year return for the loss given the size if that's all that needs reported.
Yes, only the earnings on a returned excess contribution (for 2021) are taxable on your 2021 tax return. If you have a loss then you have no income to report. Entering the 2023 Form 1099-R with codes JP (with a loss) on your 2021 tax return would only trigger the Explanation Statement for the returned contribution. Therefore, you don't need to amend your 2021 return but please make sure you keep all documentation.
Yes, only the earnings on a returned excess contribution (for 2021) are taxable on your 2021 tax return. If you have a loss then you have no income to report. Entering the 2023 Form 1099-R with codes JP (with a loss) on your 2021 tax return would only trigger the Explanation Statement for the returned contribution. Therefore, you don't need to amend your 2021 return but please make sure you keep all documentation.