1099-R code P
Hello,
Taxpayer contributed to traditional IRA $14k by mistake for 2022 and once recognized the issue he did a corrective distribution of $7k by 10/16/23 on the due date of the tax return which he had extended his tax return. As a result, he received 2023 1099-R for the IRA distribution with code “P”. When i checked online code “P” is “P—Excess contributions plus earnings/excess deferrals taxable in 2023”. So it will be treated as a taxable income. But if i understand the corrective distribution correctly, there shouldn’t be any excise tax since he took out the excess by the due date and the distribution is not taxable distribution (even if he took it out before 59 1/2) as this was a corrective distribution but not early withdrawal. Should we request a revised 1099 R with a different code? What would be the correct code for a timely corrective distribution? do you think taking the corrective distribution on 10/16/23 on due date instead of 10/15 caused the issue (is there any law that says it should be on or before 10/15?) in 2023 the tax due date was 10/16 since 10/15 was on weekend. If we didn’t get a revised 1099R then i believe we have to show the corrective distribution as income in 2023 tax return? Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2024-10-07 13:04
The P code on a 2023 1099R indicates that the amount shown in Box 2a is taxable in 2022. What you checked on line could have been for a 2024 1099R, for which the P code would have resulted in the Box 2a amount being taxable in 2023.
There is no longer a 10% penalty for IRA corrective distributions processed after 2022. The 1099R is correct in that it does not show a Code 1. Also, 10/16/2023 was the extended due date for 2022 returns and the P code indicates that this deadline was met.
The 1099R appears correct, but the taxable amount in 2a should be logical for the amount of allocated gains on the excess from the date of contribution to 10/16/2023.
Permalink Submitted by Beza Asrat on Mon, 2024-10-07 13:12
Thank you for the response. The 1099R shows $7,000 on box1 and box 2a is blank and box 2b is checked off as taxable amount is not determined. I think i need to ask the broker if there was any earnings from the $7,000 excess distribution then that will be the taxable portion but not the entire $7,000- am i correct? And if there was any earning that should be taxable do i need to amend 2022 or can be reported on 2023? Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2024-10-07 14:16
In that event, the 1099R is evidently incorrect if Code P is correct but the rest of the entries are inconsistent with Code P. “Taxable amount not determined” should not be checked with Code P and Box 2a should be blank only if there was no gain with the corrective distribution. If there is gain, only the amount of gain should be in 2a.
Due to the entry inconsistencies, tax programs will probably not be able to handle this 1099R as issued without manual override. If the code P itself is wrong, the 6% excise tax will be due for 2022 on Form 5329 and another 5329 required for 2023 to report the distribution that cures the excess.
Would recommend getting this 1099R corrected. If there are actually taxable gains that should be in 2a, they are taxable in 2022 if Code P applies. If the gains are small enough, taxpayer could just let the IRS bill for the gains and not bother with a 2022 1040X.
Permalink Submitted by Beza Asrat on Mon, 2024-10-07 15:04
Thank you so much. So if code “P” is correct i.e. excess distribution was made timely by 10/16 then what should i ask the broker to correct on the 1099-R? To include the amount taxable (if any earnings) on box 2a and to remove the check box from box 2b? Thank you.