Traditional IRA Excess Contribution Removal Reporting

[Ventura]

It is 2019 contribution and returned in 2020

[macuser_22]

Then if a Traditional IRA:

*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2019 tax return and the earnings were also returned and you know that the IRA custodian will report this as a return of contribution and not as a normal IRA distribution - then:

You can just report it now and ignore the 2020 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or box 12 State withholding. Then you must also enter the 2020 1099-R into the 2020 tax return since the withholding is reported in the year that the tax was withheld. The 2020 code P will not do anything in 2020 but the withholding will be applied to 2020.

You would enter the 2020 1099-R with the total distribution in box 1 (contribution plus the earnings),

The earnings in box 2a,

Check the IRA/SEP/SIMPLE box.

Enter code "P" in box 7 - don t worry that it will say "taxable in 2018 "

Enter code "1" in box 7 if under age 59 1/2 (lower box 7).

On the "Which year" screen say that this is a 2020 1099-R.

After the 1099-R summary screen press continue.

If you are over 59 1/2 then on the "Lets see if we can lower your tax bill" enter the box 2a amount in the "Another Reason" box to eliminate the 10% early withdrawal penalty on the earnings.

Enter the explanation for the excess contribution and that you are reporting a 2020 1099-R on your 2019 tax return to avoid having to amend in 2020.

The box 2a earnings will be taxable income reported on line 4b on the 1040 form and if under age 59 1/2 will also be subject to a 10% penalty on a 5329 form.

[Ventura]

What shall I put in box 2a?

I try three different number, the result are different

1. I put same amount as box 1. I need pay more tax.

2. I put same amount as box 3, the gain. tax refund is same. Then, the TT review shows I can't do e-file  for California, because form 4852 are not eligible for electronic  file. I have print out state tax and mail it.

3, I  leave it empty, the TT review shows error: the box 3 can't greater than box 2a.

In 2b, I select taxable amount not determined

[macuser_22]

---

@Ventura wrote:

What shall I put in box 2a?

I try three different number, the result are different

1. I put same amount as box 1. I need pay more tax.

2. I put same amount as box 3, the gain. tax refund is same. Then, the TT review shows I can't do e-file  for California, because form 4852 are not eligible for electronic  file. I have print out state tax and mail it.

3, I  leave it empty, the TT review shows error: the box 3 can't greater than box 2a.

In 2b, I select taxable amount not determined

---

Did you read my answer above your post?

A 4852 is NOT appropriate for this - just a normal 1099-R.

My instructions said nothing about box 3 (that is invalid for excess contribution- box 3 is for capital gains on a charitable gift annunity).

Only the *earnings* go into box 2a which is the taxable amount.

[rjp123]

Hi BillM223,

So, it's 2021 now and I received a "2020 Form 1099-R" that shows the earnings on the excess. I created a 1099-R in TT & entered the information from the "2020 Form 1099-R" that I received & saved it. However, my overall earned income did not increase by the amount in the Taxable Amount (Box 2a)?? What do I have to do to get TT to increase my overall earned income by the amount in the Taxable Amount (Box 2a)?

Any Help would be appreciated,

rjp123

[DaveF1006]

What did you use as a distribution code in Box 7?

[macuser_22]

---

@rjp123 wrote:

Hi BillM223,

So, it's 2021 now and I received a "2020 Form 1099-R" that shows the earnings on the excess. I created a 1099-R in TT & entered the information from the "2020 Form 1099-R" that I received & saved it. However, my overall earned income did not increase by the amount in the Taxable Amount (Box 2a)?? What do I have to do to get TT to increase my overall earned income by the amount in the Taxable Amount (Box 2a)?

Any Help would be appreciated,

rjp123

---

Box 2a is not "earned income", but it is taxable income and when  entered should be on the 1040 form line 4b.

Did you enter the 1099-R in the proper place?

Enter a 1099-R here:

Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

[rjp123]

"P", which was the Distribution Code that appears in Box 7 on my "2020 Form 1099-R"

[rjp123]

When I print the Form1040 box 4b has "0" in it.

[macuser_22]

A 2020 code "P" means "taxable in 2019".   You must enter the 2020 code P 1099-R into an amended 2019 tax return and TurboTax will ask if it is a 2019 or 2020 1099-R - select 2020 and then the box 2a amount will go on the amended 2019 1040 line 4b.

[rjp123]

After I created the 1099-R TT  asked me the year  on Form 1099-R & I answered 2020. Then, it told me I had to amend the 2019 tax return??

[macuser_22]

That is what my answer said to do - enter the 2020 1099-R into a *2019 amended* return and say it is a 2020 1099-R.

2019 amended Federal returns can either be e-filed or mailed. 2018 and earlier amended returns can only be mailed. It is suggested that it be mailed certified with return receipt (or other tracking service) to verify that the IRS or state receives it.

See this TurboTax FAQ for detailed amend instructions:
https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed

-- Amended returns can only be mailed - allow 8-12 weeks - can take up to 16 weeks (4 months) for processing.

You can check the status of the amended return here, but allow 3 weeks after mailing.

https://www.irs.gov/filing/wheres-my-amended-return

[rjp123]

The following is what BillM223 instructed me to do back in February 21, 2020. He said I will receive a 1099-R in early 2021 that shows the earnings on the excess, to put on  my 2020 return. No mention of filing an amended 2019 tax return. Who is right?

 BillM223 Employee Tax Expert

‎February 21, 2020 10:56 AM

 

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]

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.

[macuser_22]

---

@rjp123 wrote:

The following is what BillM223 instructed me to do back in February 21, 2020. He said I will receive a 1099-R in early 2021 that shows the earnings on the excess, to put on  my 2020 return. No mention of filing an amended 2019 tax return. Who is right?

 BillM223 Employee Tax Expert

‎February 21, 2020 10:56 AM

 

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.

---

You said that this was a 2020 1099-R with a code P.     That is for a contribution that was *for* 2019 and removed prior to the due date of the 2019 tax return.  That can ONLY be reported on an amended 2019 tax return just as TurboTax said to do when you entered it into 2020 TurboTax.

If that is incorrect and it was actual a 2020 contribution *for* 2020 then the 1099-R is incorrect and should have had a code 8 in box 7.

quote form your post

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

That is incorrect.  You never pay tax on the return of an excess contribution, you only pay tax on any earnings that are in box 2a and you pay that tax in the year that the contribution was *for* (2019), not the year removed.

[macuser_22]

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.

[macuser_22]

I edited my answer to add additional information.