Should I add a 1099-R with my return

[pius_ttax]

Hi - 

I made Roth IRA contributions of $6k each in 2019 and 2020 for those respective years in both me and my spouse's names (total $24k). At the time of preparing the 2019 tax return in June 2020, I realized all our contributions were ineligible because of income limits. So I decided to recharacterize both my contributions to a traditional IRA and  remove the two excess contributions made on my spouse's name.  All accounts had losses by this time (each $6k contribution suffered a loss)

In the 2019 tax return, I entered my contribution as recharacterized from Roth to traditional IRA. This generated a form 8606 and explanation statement in the return.

For my spouse, I said the  the excess contribution was removed - I had an excess removal of the $6k (which had a loss of $500 - so net $5500) processed by the broker.  In the 2019 return, this did not generate any form and I did not include anything else with the return. I did not do anything with the 2020 contribution because I did not know I could remove it at that time. So it stayed in the account as cash (about $5500)

Now, in 2020 return, I am again entering my contribution for 2020 as recharacterized from Roth to traditional IRA which is generating a 8606 and explanation statement.

For my spouse, I asked the broker to process an excess removal - the excess contribution removal was processed a few days back. I indicated an entire excess removal of $6k (net $5500) in TT which is not generating any other form.

The broker where the accounts are has so far generated three 2020 1099-R's in Feb 2021. 

• 1 with codes PJ in box 7 for my spouse's excess removal of 2019 contribution (no other boxes filled or checked except Box 1 saying $5500)
• 1 with code R for my 2019 contribution recharacterization (Box 1 has amount and 2a has $0 - no other boxes checked or filled)
• 1 with code N for my 2020 contribution recharacterization (Box 1 has amount and 2a has $0 - no other boxes checked or filled)

They said the 1099-R for my spouse's excess removal of 2020 contribution will generate in 2022 (as a 2021 1099-R):

At present, I am a bit confused what forms I need to file or if I need to amend anything. My questions:

1.  Was my 2019 filing accurate? (Has only one 8606 and explanation for my recharacterization - no 1099-R forms as I did not know I could generate one manually)

2. Is my 2020 filing accurate? (Has only one 8606 and explanation for my recharacterization - no other forms)

3. Should I generate any 1099-R forms for the three 2020 1099-Rs I received and file with my 2020 return (electronic filing)?

4. Is there any need to amend my 2019 return? If so, what should I include and explain?

I made a big mess - sorry for the long question and thanks in advance for your patience.

[DanaB27 · Accepted solution]

1)Yes, your 2019 filing was accurate.

2) Yes, your 2020 is accurate.

3)No, the 1099-R 2020 with code N will not do anything on your return and you have already entered the recharacterization correctly. The other two 1099-R belong in 2019 because of their codes in box 7 (see more details in answer 4). If any of the 1099-R had taxes withheld you would enter them on your 2020 return to get credit for the taxes paid but they don't therefore you do not have to enter any on your 2020 return.

4) No, since the withdraw of excess contribution did not have any earnings there is no need to amend you 2019 tax return to include Form 1099-R 2020 with the code J and P (if you had earnings they would have been taxable in 2019). Also the 1099-R 2020 with code R belongs on the 2019 return but the code R won't do anything on the return and you reported the recharacterization already correctly.

[pius_ttax]

Thank you very much for the prompt and clear reply.

[pius_ttax]

Hi - 

Thank you for the prompt and clear reply - 

Just want to clarify one last item : I read online about the form 5392 - and I see confusing references online that it should be filed even if there are no taxes due . This form was/is not generated in either return (2019 or 2020)  for my spouse's excess removal - I wanted to confirm that this is ok? I am assuming since I had losses, there is no need to provide this form either.

Thanks.

[DanaB27]

Yes, it is ok that Form 5329 was not created.

You removed the excess contribution/ recharacterized to avoid excess contribution in time and therefore you do not have the 6% penalty tax.

Also, the 1099-R with code P and J did not have any earnings that would trigger the 10% early withdrawal penalty. 

Therefore, you do not owe any penalty and Form 5329 is not created.

[pius_ttax]

Thank you very much.

[pius_ttax]

I was doing a final check of my return and wanted to confirm - Under the "Wages & Income" section, where it asks "Did you receive any retirement income for 2020?", I answered no and did not enter any 1099-R's (for the 3 1099-R's received so far). The only information I entered about the recharacterization and excess withdrawal was under the "Deductions & Credits" section (in both tax returns 2019 and 2020). 

Just wanted to confirm this is correct.

Thanks so much.

[DanaB27]

Yes, it sounds like you entered and reported everything correctly.

[pius_ttax]

Thanks again.