Personal Finance & Money Asked on September 26, 2021
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 $277.50. Now I received a letter from my broker summarizing this transaction. The letter also says:
The amount of earnings returned to you, if any, will be reported as taxable income for the year in which the excess contribution was made. This transaction will be reported on IRS Form 1099-R, which will be mailed to you next January.
If the earnings are supposed to be reported on my 2020 taxes, why will I be getting the 1099-R next January?
I haven’t filed my 2020 taxes yet. What should I do going forward?
Although you withdrew your over-contribution, it made some gains. Those gains are automatically withdrawn too (so if you withdraw 100$, you might get a 101.57 $ check, for example); those gains are taxable income.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.
Answered by Aganju on September 26, 2021
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