If the taxpayer is under the age of 59½, they pay the 10% early withdrawal penalty on just the earnings portion of the excess contribution. They pay income tax on the earnings. They avoided the 6% penalty, since they pulled the money out in time. That is a moot point. There should be a form 1099-R that shows this was early distribution (codes 8 and J, most likely). There should be a form 5498 for the penalty.
Prior basis doesn't come into play.
Thanks! Your understanding is my understanding. Glad to have it confirmed.
How do I get Lacerte not to route it through 8606 or have lacerte to not pull the prior legitimate basis to line 22 of the 8606?
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