Removal of Excess Roth Contribution
I have a client who, on 1/30/2013, made a $6,000 prior year contribution for tax year 2012, to their Roth IRA. Upon filing their 2012 taxes in March of 2013, she discovered she was ineligible for a Roth contribution due to her income; so she filed a removal of excess contribution which was completed on 3/13/2013.
She received a 1099-R in January of 2013 coded P,J for removal of prior year contribution that is taxable for 2012. However, her tax software is telling her it should have been coded 8,J and be taxable for 2013.
Does anyone know which is correct?
Permalink Submitted by Alan - IRA critic on Tue, 2014-04-08 16:00
The earnings on the corrective distribution are taxable in the year IN WHICH (not FOR which) the contribution is made. It was made in 2013 and therefore the tax program is correct and the correct codes are 8,J. Client should request a corrected 1099R showing those codes, otherwise the IRS will be looking for an amended return for 2012. In the meantime, she could still file the 2013 return as if the codes were correct. and include an explanatory statement with that return just in case the corrected 1099R is not issued. Or she could file an extension if she has other reasons for doing so, and wait for the correction.
Permalink Submitted by Michael Peterson on Tue, 2014-04-08 21:28
Alan, could you possibly cite where you found the clarification that the corrective distribution is taxable in the in IN which it was made and not FOR which it was made? Fidelity is claiming the IRS language is vague. Thanks!
Permalink Submitted by Alan - IRA critic on Tue, 2014-04-08 22:29
IRS Pub 590, p 53 “How to treat withdrawn interest or other income”. The language is very clear, nothing vague about it.
How to treat withdrawn interest or other income.