Return of Excess Back Dated

Submitted by Kevin O'Hearn on Tue, 2020-03-03 19:44

Hello, I have a client who processed a normal distribution on 04/10/2018 for $1000 (no tax withholdings). The client should have processed a return of excess for $1000 back on 04/10/2018. My broker/dealer is making an exception and adjusting the tax report coding of the transaction to a return of excess. My question is would there be a need to do an earnings calculation from 04/10/2018 until to day to see if any earnings would need to be removed? I’m on the fence and looking for some feedback.

Thank you.



Submitted by Alan - IRA critic on Tue, 2020-03-03 21:57

  • I assume client already has a 1099R for the distribution, but not coded as removal of an excess contribution. Is the IRA custodian going to issue a corrected 2018 1099R showing removal of the excess? If so, they should do the earnings calculation and distribute the earnings, and show the earnings in Box 2a of the corrected 1099R.
  • The earnings should only be calculated from the date the contribution was made to 4/10/18 if the intent is to reform the corrective distribution into what it should have been at the time. A custodian would only offer to do this if they were 100% at fault in dealing with the original transaction.
  • There are obvious multi year tax and reporting issues depending on exactly what the custodian reports along with this change. They need to confirm what they are doing and what the 1099R will show next January.
  • Was the original contribution a 2017 excess contribution, or 2018?

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