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I contributed $6,000 to an IRA, however I discovered as I was filling out my tax return that I am only eligible to deduct $2,600.

I will withdraw the $3,400 from my IRA (as allowed per Pub 590a), so the contribution to my IRA for the tax year 2021 will only be $2,600. This will happen after April 18, but well before the October deadline (April 18 + 6 months).

Since I planned on withdrawing the $3,400 from my IRA, when I filed my tax return I did not include a form 8606 to report the $3,400 as a nondeductible contribution as required per Pub 590a).

Pub 590a states that since I am withdrawing the $3,400 contribution after filing my return I must 'file an amended return with “Filed pursuant to section 301.9100-2” written at the top.'

Since my end state (IRA contribution being $2,600, all deductible) will match what I originally filed, do I need to file any amended returns? Or do I need to amend it twice (once to included the form 8606, and a second time to include the withdrawal and removing the 8606)? Or is there some other option to do?

I assume my brokerage will be sharing with the IRS the activity on my IRA, and I want to make sure everything is on the up-and-up between me and the IRS.

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    Be certain the custodian (brokerage) KNOWS you are making a 'corrective withdrawal' aka 'return of erroneous contribution' NOT a normal distribution. They need to include allocable earnings, and they do need to report this differently -- not in real-time but next Jan or Feb on 1099-R as code P, and when that happens it needs to match what you file(d). And if there are allocable earnings as stated just below your link you must add them to your taxable income for the year the contribution was made -- 2021 -- so yes you will need to amend 2021, but once should be enough.
    – dave_thompson_085
    Apr 17, 2022 at 3:09
  • @dave_thompson_085 There are zero earnings - all the contributions are still a cash balance in the IRA and have not been invested yet. And I won't even invest the $2,600 contribution until sometime after the $3,400 withdrawal is complete, to avoid any confusion or complications.
    – IRA Oopsie
    Apr 17, 2022 at 15:24

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Since my end state (IRA contribution being $2,600, all deductible) will match what I originally filed, do I need to file any amended returns?

I'd say no, but I'd also say that a better way would be to first withdraw and then file. Because currently you have filed a return that doesn't actually represent the facts, and you knew it.

I don't think any harm will come to you from this mistake at this point, but it is worth remembering that filing a factually incorrect return is perjury (even if no tax fraud intentions were present, as seems to be in your case).

When you sign the return, you're actually signing this (from 1040 signature line):

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

The IRC Sec. 7201 defines this violation as a felony punished by $100K fine and/or up to 3 years in prison.

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  • You are allowed to file a tax return claiming a deduction for an IRA contribution before you make the contribution, so why is this different? Is it because IRA contributions are made by the regular tax filing deadline in April, whereas this withdrawal of excess contribution is done after the filing deadline?
    – user102008
    Apr 16, 2022 at 21:58
  • @user102008 the IRS explicitly allows you to file the return claiming the deduction before the contribution is actually made because you may need the refund to be able to fund the contribution. In the case of the OP here, the OP missed the withdrawal deadline, yet hadn't filed for an extension and submitted a tax return that assumed the withdrawal had been made. As I said, I don't think this is in any way material enough for anyone to care, but if there are other issues with this taxpayer this may become another charge the prosecutors would be able to stack on in the indictment.
    – littleadv
    Apr 16, 2022 at 22:03
  • @littleadv My taxes are pretty simple and straight forward, in fact this is the first year I even contributed to an IRA. I have absolutely zero concern about anything in my tax return being wrong or fraudulent. Even though my tax return will be 100% accurate and I am confident I could answer any questions the IRS has about it, I'd rather be proactive and do whatever I need to do to prevent my return getting the attention of the IRS.
    – IRA Oopsie
    Apr 17, 2022 at 15:16

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