IRA Excess Removal – Amended Tax Return

Submitted by Anonymous on Wed, 2009-11-04 06:32

Can someone confirm how long I have to amend my 2008 return for an excess removal of a 2008 rollover, removed in 2009. I assume 3 years, although I suspect the IRS would start asking questions next June for the January 1099R (if I did not do it by then)? Also, since this new to me, is there a filing cost?

Thanks.

pmk



Submitted by Alan Spross on Wed, 2009-11-04 20:17

pmk,
Sounds like a tax due situation if this was not an eligible rollover distribution. The IRS is far from consistent on when they deal with 1099R reconciliations, but you are probably facing underpayment penalties for the period prior to 4/15/2009 and a failure to pay penalty of .50% for each month after that date. If you extended your return and paid at least 90% of your actual tax liability, this penalty does not apply during the 6 month extension period. So there might not be a formal deadline to file, but the interest clock is running.

I assume this was a timely correction of an excess contribution along with the earnings adjustment. Depending on circumstances, early withdrawal penalties may also be a factor.



Submitted by Anonymous (not verified) on Wed, 2009-11-04 23:02

Thanks alan (and for some of the previous responses):

I am still a bit confused about this one as this has been dragging on for months (I posted something a while back).

A small amount of pre and post dollars where considered excess and rollled over from a 401K (to Rollover & Roth IRA). I have not been sent my corrected 1099R, but I did remove the amounts in a timely manner – both losses. So I am thinking no penalties and possible more taxes, that’s it. I filed my 2008 taxes in April 2009.

I can’t imagine I would owe more, since this was brought to my attention in June 2009. I guess I should have my custodian pay the penalties?

Thanks.

pmk



Submitted by Alan Spross on Wed, 2009-11-04 23:21

These were excess deferrals, excess contributions, or excess annual additions to the 401k that the employer distributed to you? And no 1099R for it yet with Box 7 coding? It then got rolled to an IRA which you corrected in the usual fashion, and you are dealing with reporting it so you do not get taxed on both 1099Rs?



Submitted by Anonymous (not verified) on Thu, 2009-11-05 01:08

Well, to the best of my knowledge:
The amounts were called “ineligible contributions”. They were amounts deferred that I was not supposed to get, because I left a company mid-year due to certain vacation days I took over the pro-rated amount???

Bottom line, I paid them the money back out of pocket and am still expecting the corrected 1099R. I assume the new amount of the 1099R is going to be less than these amounts???

IRA Excess: My guess is that the pre-tax amount, since was returned to be will be added as income and the Roth amount will not impact my taxes.

I am going to rely on Turbotax to ask the questions…..

pmk



Submitted by Jose Morales on Thu, 2009-11-05 23:34

I’m having a hard time understanding why you are getting a corrected 1099R. There are two excess contributions here, correct? First the exces contribution/deferral to the 401K which wasn’t discovered until 2009 and then the excess contribution of an ineligible rollover amount to an IRA (the excess contribution to the 401K).

You would get a 1099R for the distribution/direct rollover from the 401K that occurred in 2008. There would be a 5498 for the rollover into the IRA in 2008 as well for this same amount.

Now in 2009 you find out that a portion of the rollover was not eligible and therefore an excess contribution. You withdraw the funds from the IRA plus any earnings attributable to the excess in 2009, for which you will receive a 1099R next January with distribution code P.

similarly the excess contribution correction of the 401K deferral will be documented in 2009 tax forms, not reissued 2008 tax forms.



Submitted by Anonymous (not verified) on Thu, 2009-11-05 23:49

You bring up some good points and I will need to do some research on why I was thinking that.

But, I must file an amended return for 2008, explaining the excesses out of the IRAs? Do you agree? So, if you are right, I can do that right now and be done with this issue? The 1099Rs from both sides will merely reflect my amended 2008 tax return reporting, I think…..

Thanks.

pmk



Submitted by Anonymous (not verified) on Mon, 2009-11-09 06:07

FYI: for those who commented on this thread.

I got my 2008 corrected 1099-Rs from the employer. Why all of a sudden? I wrote the CEO of a big mutual fund company and “magically” there they were 5 days later [u]o[/u]r they just got around to mailing them…..

For those trying to amend an 2008 return using TurboTax, be prepared for a fun time. 2008 version is not available online anymore, so they need to send you a download. Good luck. I have not been successful yet.

Cheers.



Submitted by Jose Morales on Mon, 2009-11-09 17:21

Although you did receive a corrected 1099-R for 2008, I’m still not convinced that this is appropriate. When you remove an excess contribution in the year after the contribution was made, but before your tax filing due date with extension, you receive a 1099-R with distribution code “P.” This signifies to the IRS that you removed an excess contribution that occurred in the prior tax year, even though you are reporting the correction in the current tax year. The excess contribution/deferral was placed into a retirement account, even if incorrectly, and is does not become part of your reportable income until it is removed as an excess contribution.

Giving a corrected 1099-R for 2008 is in effect wiping away a record of what actually occurred, rather than accurately reporting the mistake and the steps to correct that mistake.



Submitted by Anonymous (not verified) on Mon, 2009-11-09 17:30

Yes, but keep in mind this is the 1099-R from the 401(K) for the rollover distribution that was corrected. I guess when they audited their books in 2009 they found the excess. I paid them the money back and the plan changed what was contributed “into it” for 2008. That is the only way I can explain it…..
The IRA side will issue me the 2009 1099-R showing the “actual” excess removal I performed, as you stated.

pmk



Submitted by Clyde Wolf on Tue, 2009-11-10 00:55

If the excess 401k contribution was a tax deferred contribution, wouldn’t that change your
W-2 income, maybe withholding, SS earnings and withholding, as well as medicare payment?



Submitted by Anonymous (not verified) on Tue, 2009-11-10 01:09

cwolf:
Good points:
I am really a novice when it comes to these issues. I know about the IRA rules.
Half of the excess was Roth 401(K) so I don’t see that as affecting anything with a W-2. The other half is the question. Was that just the employer matching amount? Who knows.

pmk



Submitted by Alan Spross on Tue, 2009-11-10 03:06

pmk,
Reviewing the entire thread again, this sounds like an excess deferral rather than an excess contribution situation, even though the plan may be referring to them as “ineligible contributions”, which is an overly general term. If vacation pay was recovered, there should also be a return of wages as well as retirement plan deferrals. If correct about the excess deferrals, there should be two 1099R forms, one for the pre tax deferral and one for the Roth 401k deferral. The coding is the same for excess deferrals, excess contributions or excess Only the pre tax portion would have to be included in your 2008 income, although earnings on both contributions would also have to be reported on line 7 of Form 1040. You did not mention anything about an employer match also being recovered. There should be no penalty here, just the added income on line 7 of the 1040X.

However, your non excess portion of the rollover is valid, so the plan should have a 1099R showing a direct rollover of the valid amount for the Roth and for the TIRA as well as 1099R forms showing the excess portion that was not rollover eligible. These non rollover eligible amounts need to come out of the IRAs as excess contributions with an earnings calculation for the IRA time, since I believe you corrected the IRA excess on a timely basis. You would only get taxed once here, the contributions on line 7 and the IRA earnings on line 15b. There is no exemption for the 10% early withdrawal penalty for the earnings in either the Roth or TIRA accounts, as there is for earnings in the plan that go on line 7.

This is a rare complex situation, particularly with the pre tax and Roth split in the 401k. You probably need to add considerable explanatory statements with the 1040X for the IRS to understand what transpired here. The plan apparently also neglected to provide you with the written detail needed to understand all the moving parts.

I made alot of assumptions here, so may have overlooked some details.



Submitted by Anonymous (not verified) on Thu, 2009-11-12 02:11

Thanks alan for reviewing this again:
Last Question:

Do you know what all I will be sending in for this type of amendment?
[b]1040X
2 x 5329 (for each IRA type)
Full new return – federal and state
Narrative
copies of all 1099-Rs (401K and IRA side)[/b]

Am I missing something?

Thanks.

pmk



Submitted by Alan Spross on Thu, 2009-11-12 02:42

There is a section on p 2 of the 1040X to include a narrative explanation for all revisions included. The line 7 additional amount will increase line 1 on p 1 of the 1040X. You may also need to show a corrected amount reflecting the 1099R direct rollovers of allowed amounts which would be line 16 and may also change your AGI.

For the IRA removal correction, there should be taxable earnings on line 15b, which also increases AGI on p 1 of the 1040X, and a 10% penalty on the earnings for which you need to attach a 5329. The increased AGI may result in other changes, such as a decrease in certain itemized deductions (line 2 on p 1 of 1040X) or trigger some other changes that you would have to determine based on your original return.

The 1099R forms are not normally included, but no harm done if attaching copies helps you illustrate your explanatory statement. Again, this assumes that the 1099R forms indicate what I suspect they should and there are plenty of assumptions I am making that may be incorrect.

Page 1 of the 1040X can be somewhat tricky if you are not used to dealing with them, so referring to the Inst for 1040 X may help.



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