1099-R (Code 8 in Box 7)

[Dan]

 

I have a 1099-R with a code 8 in box 7 and an x placed in the IRA box.  There is 33.43 in box 1 and 0.00 in box 2a.  

A traditional IRA contribution of $6,500 was made in January 2014.  On the 2014 return only $2,000 IRA contribution was used.  $2,142 could have been used that year.  So you see there was an excess contribution.  On February 18, 2015 $4,500 was withdrawn from the IRA. along with $33.43 of earnings attributable to the contribution.

Question:  What do I do with the $33.43 of earnings in box 1?  

[jklcpa]

Enter the 1099R amounts into your software as reported with the code 8 shown in box 7. Because this is a return of earnings from an IRA it will flow to line 15a, and the taxable portion on line 15b will be -0-.

[Dan]

Question:  Why are the return of earnings not taxable?

[jklcpa]

I'm sorry, you are correct. The earnings will be taxable, and the 1099R should indicate the year they are taxable. Since 2014 was the year of the excess contribution and it was withdrawn before the due date of the 2014 tax return, this probably should have been reported on the 2014 return and subject to the 10% early withdrawal penalty of $3.

[Dan]

Does there need to be a correction made to the 1099-R.  Earlier I wrote that 0.00 were in box 2a.  Should box 2a have 33.43 in box 2a? 

[joanmcq]

IRAs never have an amount in box 2a.  Blank is not the same as zero.  The taxable amount is not determined box is always checked because the IRA custodian has no idea whether nondeductible contributions have been made.  

[Roberts]

You can take a withdrawal for excess contribution and avoid the 10% penalty as long as you do it (I think) by April 15th. Since you didn't claim the contribution as a tax deduction - the withdrawal isn't taxed.

[Gail in Virginia]

1 hour ago, Roberts said:

You can take a withdrawal for excess contribution and avoid the 10% penalty as long as you do it (I think) by April 15th. Since you didn't claim the contribution as a tax deduction - the withdrawal isn't taxed.

Except that I think you have to take the income that the contribution earned before it was withdrawn, and that portion of the withdrawal will be taxable. 

[Roberts]

4 hours ago, Gail in Virginia said:

Except that I think you have to take the income that the contribution earned before it was withdrawn, and that portion of the withdrawal will be taxable. 

Is that not the $33.43 on the 1099-R Dan mentioned?