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I overcontributed to my Roth IRA by $2,000 in 2020. I realized this when working on my 2020 taxes this year, so withdrew the excess contribution and respective earnings of $277.50. Now I received a letter from my broker summarizing this transaction. The letter also says:

The amount of earnings returned to you, if any, will be reported as taxable income for the year in which the excess contribution was made. This transaction will be reported on IRS Form 1099-R, which will be mailed to you next January.

If the earnings are supposed to be reported on my 2020 taxes, why will I be getting the 1099-R next January?

I haven't filed my 2020 taxes yet. What should I do going forward?

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  • @Aganju It could be, but their template is explicitly for excess contribution corrections, which usually happens when the taxpayer starts working on their taxes the year after. I'd be surprised if this was a silly oversight on their part. – AxiomaticNexus Mar 2 at 15:43
  • Because the deadline for issuing the payee copy (aka 'statement') for most 'information returns' including 1099R for 2020 was Jan. 31 2021 which has already passed, and your broker is apparently a human not a Gallifreyan (or companion thereof). Since you know the correct figures now, go ahead and use them in your return, and you won't need to amend later. (You are not required to have, wait for or use 1099-series and 1098-series statements, except for voluntary or backup withholding claimed on a paper return.) – dave_thompson_085 Mar 3 at 6:54
  • @dave_thompson_085 The problem is that 1099-Rs are more complicated than just Box 1 and 2a. There is broker information, codes in box 7, and a dozen other boxes that I'm not sure what values they would have come filled in with. – AxiomaticNexus Mar 3 at 14:39
  • Payer and EIN is the same as previous year(s), or look on their website or ask them. Codes are defined in the instructions, although as I commented on the answer the current instructions on the website have been updated for 2021 and you want to do 2020 so you either need to make the obvious adjustment or go to the page for "Prior Years Forms and Instructions" (and publications) and you'll find 8 (excess contributions/deferrals/earnings) plus B (Roth). – dave_thompson_085 Mar 6 at 7:20
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Although you withdrew your over-contribution, it made some gains. Those gains are automatically withdrawn too (so if you withdraw 100$, you might get a 101.57 $ check, for example); those gains are taxable income. They happened between your over-contribution and your withdrawal, and were realized when you asked for withdrawal - which is in 2021.

So you will have to pay taxes on those gains when you file for 2021 (which will be in 2022).

The over-contribution is corrected, and will reflect as such on your 1099-R for 2020. You only need to pay taxes for the gains, those will reflect on the 1099-R for 2021 - ignore them for this years's filing.

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  • But that's not what the letter says though. It says that it is supposed to be reported as taxable income on the year the contribution was made, not when it was withdrawn. – AxiomaticNexus Mar 2 at 15:45
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    "So you will have to pay taxes on those gains when you file for 2021" Not true. According to Publication 590-A, for withdrawal of excess contributions before the due date of the tax return, earnings are considered earned and received in the year the excess contribution was made. – user102008 Mar 2 at 18:37
  • @user102008+ and there are specific codes to separate current-year from prior-year taxable corrections -- since the 2021 instructions are already up on the website compare codes 8 and P in table 1 and observe both can be 'used with' B for Roth. – dave_thompson_085 Mar 3 at 6:52
  • @dave_thompson_085 But if the earnings are supposed to be taxed at 2020 tax rates, how would that be calculated in my 2021 tax return if it has absolutely no information about my income level for 2020. – AxiomaticNexus Mar 25 at 22:37
  • @AxiomaticNexus: they don't go on your 2021 return, as user102008 correctly commented (and I commented on your question) they go on your 2020 return, i.e. the one you should be filing in the next 7 weeks (they autoextended April 15 to May 17 for COVID, much like they did last year for 2019 returns -- although of course you can still fil 4868 for an extension until Oct. 15 if you need it) – dave_thompson_085 Mar 26 at 14:31

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