Unhallowed ROTH IRA - TY 2022 & 2023

[Love2Cruise]

Hello All! My TP was not allowed to contribute to a ROTH due to the filing status (MFJ). The funds were withdrawn in 2023 prior to the 2022 tax return filing date. A 1099-R was created by the brokerage firm to file with the 2022 return and I entered it with codes J & P to remove the penalty. TP received the actual 2023 1099-R for the which includes an additional 24.84; I'm sure is earned interest or dividends. Do I enter the 1099-R using the same codes and enter the taxable amount as the difference? Or only enter the taxable amount and ignore the balance since it was reported on the 2022 return? As always, appreciate your input and advice. Warm regards!

[Frustrated-in-IL]

Neither.  The correct answer is to file an amended return for 2022.

However, for $24.84 of additional income I would do nothing and if a bill comes from IRS for a few dollars, advise the client to pay.  I believe others here have indicated IRS won't even generate a notice for something that small.

[Love2Cruise]

File an amended return to correct the reported income on 1099-R? 

Thank you.

[Frustrated-in-IL]

This is what I understand are the facts in your case.

You received a 2023 1099R coded that the transaction is taxable in 2022.  This amount needs to go on the 2022 return which you already filed.  The brokerage firm gave you a mock up form last year showing what the amount would be, and you included those amounts on the 2022 return.  But those amounts were wrong.  Now that you received the real form, it is different from what they projected by $24.84 of taxable income.  The IRS only got the 2023 1099R that you just received and will see it is different from what you reported by $24.84. 

In this case, for such a small amount I would just wait for IRS to respond instead of amending a return.

[Love2Cruise]

Oh ok. I misunderstood your initial response. That makes total sense and I agree. They would rather pay a couple of dollars if it comes down to that, as opposed to having to file an amended return. 

So I don't need to do anything with the 1099 received for this year, as the IRS will reconcile it with the 2022 return (for the most part), correct?

Thank you soooo much for your help and input! Very appreciated!!!

[Frustrated-in-IL]

Yes, you do not have to do anything with that 1099R for 2023.  If you look at the codes, it is coded as taxable for 2022.  The explanation of the codes should be on the back of the form if your client gave you the original.

[Love2Cruise · Accepted solution]

Actually the brokerage firm didn't use the correct codes on the acutal 1099. They only used code J, as if it were a early distribution with no exceptions. 🙄  I asked the TP to contact them and request an amended one, otherwise the IRS will think she took another distribution. So now we're waiting to see how long that will take them. I'm not holding my breath since they tried talking her out of  withdrawing the funds, AFTER I was on the phone with them and explained why she had to move the funds out. Scary isn't it?  😳

Thank you so much for your help and input. I am both appreciative and grateful. 

Have a great evening!

[Accountant-Man]

I like ROTHs as much as the next guy, but I've never considered to be so important as to be

HALLOWED, or even regarded as holy, venerated or sacred.

Maybe it's just me.

[Love2Cruise]

Too funny! I suspicion the concern was not necessarily for the TP. 😉