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Lavien
Returning Member

Substitute 1099-R

I and my husband withdrew excess contributions and earnings for 2020 from Roth IRA  in January 2021.

 

I learned on this community to create substitute 1099-R. Thank you! I am younger than 59 1/2 and simply followed the instruction. Box 1 is total distribution, Box 2a is earnings, and P & J for Box 7. My husband is over 59 1/2 and owns the account over 5 years so my understanding is that he doesn't owe tax. However, when I enter the same information as mine, the amount of tax due increased. I am wondering if I should use different codes like Q or Box 2a should be zero?

 

Thank you community members for your help!

2 Replies
macuser_22
Level 15

Substitute 1099-R


@Lavien wrote:

I and my husband withdrew excess contributions and earnings for 2020 from Roth IRA  in January 2021.

 

I learned on this community to create substitute 1099-R. Thank you! I am younger than 59 1/2 and simply followed the instruction. Box 1 is total distribution, Box 2a is earnings, and P & J for Box 7. My husband is over 59 1/2 and owns the account over 5 years so my understanding is that he doesn't owe tax. However, when I enter the same information as mine, the amount of tax due increased. I am wondering if I should use different codes like Q or Box 2a should be zero?

 

Thank you community members for your help!


What ever you learned was wrong.   A "substitute" 1099-R is ONLY used when you receive a 1099-R form from a financial institution  and it is incorrect and the financial institution refuses to correct it.  If used to report an excess contribution , you can look forward to an IRS audit letter in a year or so.

 

You will not even receive the 2021 1099-R  for the distribution of the excess until January 2022.

 

You must have requested a "return of contribution plus earnings" from the financial institution and NOT just taken the money out on your own with a normal distribution.    A normal distribution will not be penalty free and the 1099-R issued will not have the proper codes.

 

*IF* you requested a return of contributions due to an excess contribution and the excess was removed before the extended due date of the 2020 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 Roth distribution but as a return of contribution with a code "JP" in box 7 - then:

You can just report it now and ignore the 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 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld.

The 2021 code JP will not do anything in 2021 but the withholding will be applied to 2021.

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

The earnings in box 2a,

Enter code "P" in box 7 (Top) - don t worry that it will say "taxable in 2019 "

Enter code "J" in box 7 (Bottom).

On the "Which year" screen say that this is a 2021 1099-R. - That makes it taxable in 2020 and not 2019

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 2021 1099-R on your 2019 tax return to avoid having to amend in 2021.

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 that will be reported on line 59 on the 1040 Schedule 4 form.

 

 

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Lavien
Returning Member

Substitute 1099-R

Thank you, macuser_22

 

I am clear now!!! Yes, we requested "return of contribution plus earnings". I could successfully eliminate penalty. Thank you for your help!!!!

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