Traditional IRA Excess Contribution Removal Reporting

[rjp123]

I over contributed to a traditional IRA in December 2019.  I noticed the over contribution in February 2020 and submitted an IRA Excess Contribution Removal Form.  The excess contribution and the earnings have now been returned to me, but it is my understanding that I must pay taxes on the earnings on my 2019 tax return.  I called Vanguard & they said that I won't receive the 2020 1099-R for the earnings until 2021. How does Turbo handle reporting of the earnings on my 2019 tax return if I don't get the 2020 1099-R for the earnings until 2021?

[MinhT1]

Reporting excess salary deferrals (excess 401k contributions) returned to you after the end of the tax year but by April 15th of the following tax year on your 1040.  Do not create your own 1099-R for this situation.

Page 10 of IRS Pub 525 under Excess deferrals (the IRS term for 401K contribution is deferral) tells us to include the excess deferrals as income on line 7 of Form 1040 if the money was returned after the end of the tax year but by April 15th of the following tax year.  You need to report only the excess contribution, not any money generated by the investment of the excess contribution.  What you earned will be covered by a 1099-R for the following tax year and will be entered then as a normal 1099-R.

Below is how to do this in TurboTax:

• Click on Federal in the left-hand column, then on Wages & Income
• Under All Income, scroll down to Less Common Income
• Select Miscellaneous Income and click Start
• Select Other income not already reported on a Form W-2 or Form 1099 and click on Start
• Answer the question "Did you receive any other wages?  Yes
• Click through the questions till you get to Any Other Earned Income
• Answer Yes to Did you earn any other wages?
• Indicate Other as Source of Other Earned Income and click Continue
• For the description enter "2019 Excess 401K Deferrals" and click on Done

[rjp123]

Your reply has nothing to do with Traditional IRA Excess Contribution Removal Reporting! Please address my question!

[blee64]

Yes, I have the same issue.  How do I handle it in TT?

Thanks,

[BillM223 · Accepted solution]

Minh answered your question. " What you earned will be covered by a 1099-R for the following tax year and will be entered then as a normal 1099-R."

You don't owe tax on the earnings made by an excess IRA contribution in 2019, but you owe tax on them in 2020. 

The reason is because these earnings were likely earned on both years (2019 and 2020) so the IRS lets you (and the IRA administrator) defer reporting it until your 2020 tax return.

So, in early 2021, you will receive a 1099-R that shows the earnings on the excess, to put on your 2020 return.

[rjp123]

Are you a Turbo Tax employee?

[BillM223 · Accepted solution]

Yes.

[Ventura]

I have the same issue. I like to know when I receive the 1099R in 2021, what code will be in box 7.

I try this case in 2019 turbotax, assume I have excess contribution in 2018, remove the excess in 2019. I manually enter the 1099R, for box7, if I select code "8", my refund is no change. If I select code "P", then TT ask me which year on form 1099R, 2019 or 2020? If I select "2020", my refund is no change. If I select "2019", TT shows " It Looks Like You May Need to Amend Your 2018 Return".

I don't want to do the amend for prior year tax return when I report my tax return in 2021. So I like to know when I receive the 1099R in 2021, what code will be in box 7.

[DaveF1006]

First of all, don't enter a 1099R this year. Wait until you receive your 1099R next year. The code should be Code P-return of taxable contribution in 2019. 

[fanfare]

The code you will receive is not applicable to this year. even though it will be in the future

You will have to amend if you don't file the returned earnings on 4b now.

[fanfare]

go back to code "8" and make sure the "Taxable amount not determined" checkbox is not marked, because it is determined

[macuser_22]

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@Ventura wrote:

I have the same issue. I like to know when I receive the 1099R in 2021, what code will be in box 7.

I try this case in 2019 turbotax, assume I have excess contribution in 2018, remove the excess in 2019. I manually enter the 1099R, for box7, if I select code "8", my refund is no change. If I select code "P", then TT ask me which year on form 1099R, 2019 or 2020? If I select "2020", my refund is no change. If I select "2019", TT shows " It Looks Like You May Need to Amend Your 2018 Return".

I don't want to do the amend for prior year tax return when I report my tax return in 2021. So I like to know when I receive the 1099R in 2021, what code will be in box 7.

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Is this a 2018 excess removed in 2019 or a 2019 excess removed in 2020?   Your post says a 2018 contribution so if removed in 2019 you should have already received a 2019 1099-R with a code P that required that you amend 2018 to report it.

Please clarify what you did in 2020 that you are expecting in 2021?

[Note: post edited to add 2018]

[macuser_22]

@Ventura If you received my post in a e-mail then I have edited it to add the 2018 information.

[Ventura]

@ChampChiran

I receive your email, my understanding is I can remove the excess before the tax due date and add a substitute 1099R in 2019 tax return. Edit the substitute 1099R as you indicated, without tax withheld. Then I can ignore the 1099R I will receive in 2021, and no Amend is needed.

[macuser_22]

You did not answer the question.   Was it a 2018 contribution returned in 2019, or a 2019 contribution returned  in 2020?