Withdrawal of Excess Removal for Traditional IRA Codes

[alexutopia]

Which codes to use for the following case as TurboTax suggested me to review the codes brokerage firm told me for 1099R of 2019?  Please help if these info for 1099R of 2019 is correct or not.  Thanks so much!

Background:

-  Contributed $500 to Tradition IRA in Jan 2018 for 2018.  Didn't meet 2018 income to contribute

-  Request to Withdraw in Apr 2019 with 10% tax withholding :(

-  Earnings of about $9

- Brokerage advised that:

 Total Distribution = $509

2a = $9 for gross earnings

Box 4 = $1 (for tax)

Box 7: code 8 for $500 and code P for $8 of net earnings and $1 for tax (10%)

* TurboTax noted that code 8 and P are wrong.  So I only used code P and it worked.  Is it correct?  

* Shouldn't there be 2 codes required?

* Do I still add $5 in the Deduction for Traditional IRA contribution? (so far I did and Turbo Tax in that portion asked for excess contribution.  And the review seems fine for that)

Anything else I should add and correct?

[Carl]

When it comes to the codes in box 7 of a 1099-R that you were issued, you don't get to chose or change what the issuer of that 1099-R put in that box. So I'm not understanding why you're concerned with this now, since you will not receive the 1099-R for the withdrawal until 2020 anyway.

Or are you trying to show this on your 2018 return? If you do show it on your 2018 return, understand you're going to compound things for your 2019 taxes. That's because you will receive a 1099-R for the 2019 withdrawal, regardless of the reason for the withdrawal. So I would highly suggest you wait and report it on your 2019 tax return.

[alexutopia]

I haven't filed 2018 tax (asked for extension) and I requested the withdrawal of excess contribution.  This is to prevent me amending my 2018 tax in 2019.  And certainly I haven't had any 1099-R from brokerage.  That was just from conversation with them about the codes that will be included in 2019 Year 1099-R to be issued in Jan 2020.  I want to include 2019 1099-R  in my 2018 tax filing.  And I'm confused by the codes in box 7.

Brokerage advised: code 8 (for contribution) and P (for earnings and tax withhold) for 2019 1099-R

Turbotax: can't use P since 8 already used.

Can I use code P ONLY?  I understand that if I use a numeric code, I have to use another code.  But how about only P?

Is P correct?  Or is it 8 and 1?  This is 2019 1099-R form for 2018 contribution removed in 2019.

[dmertz · Accepted solution]

The 2019 Form 1099-R that needs to be included on your 2018 tax return will have code P in box 7.  It will also have code 1 if you were under age 59½ at the time of the return of contribution.  In the follow-up, be sure to tell 2018 TurboTax that this is a 2019 Form 1099-R.

The situation is slightly complicated by unnecessarily and probably inappropriately having $1 was withheld for taxes.  Because of this, this 2019 Form 1099-R must also be entered into 2019 TurboTax because while the $9 is taxable and subject to early-distribution penalty on your 2018 tax return, the $1 of tax withholding is credited on your 2019 tax return.

[alexutopia]

Thank you so much for your clear, concise, to-the-point answers! Really appreciate it.

After research, I was also surprised the brokerage didn't advise me not to include that 10% tax withholding.

Regarding 2019 tax filing, you advised that I will include 2019 1099-R again.  Do I include all the information (ie inclusive of Box 1 total distribution, box 2a)?  Or only tax in box 4?  Thank you! You're awesome.

[dmertz]

Yes, you'll enter the entire 2019 Form 1099-R into 2019 TurboTax the same way as you enter it into 2018 TurboTax.  When you indicate to 2019 TurboTax in the follow-up that it's a 2019 Form 1099-R, TurboTax will remind you that this distribution was reportable on your 2018 tax return but will only include the $1 of tax withholding on your 2019 tax return, ignoring all of the other information that is irrelevant to your 2019 tax return.