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Return of non-deductible contributions to Traditional IRA?

Forum|Forum|3 years ago
September 17, 2022
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I made a $7000 contribution (max for my age) to my Traditional IRA in Feb. 2022 for 2021 tax year. The contribution turned out to be non-deductible due to high income for the year. Using TurboTax, I filed 2021 tax return prior to April due date with form 8606. I realized I had until Oct. 2022 to have the funds returned to me without tax consequences. I requested a withdrawal of the $7000. My Custodian returned $7000 to me in Sept. 2022 (no gains, since there was a loss) under Excess Contributions. First question to clarify terminology:

*Are non-deductible contributions considered Excess contributions once determined non-deductible?

From reading IRA forms/instructions, I understand I have to file an amendment for my 2021 tax return. Using TurboTax:

*What forms do I need to fill/modify?

*Should I modify/create form 8606?

*How about 1099R, since I don't have one for 2021?

*Where do I report losses?

*What else do I need to do?

Thank you all in advance for your help.

Best answer by dmertz

Thank you dmertz.

If I have to prepare 8606 manually outside TurboTax, how can I efile it with the amendment?

What do I enter in the new 8606?

1. 7000

2. 0

3. 7000

4. 7000

5. 0

6. IRA value

7. 0 (return of contribution)

so on

The amendment must be filed on paper and mailed to include the manually prepared amended Form 8606.

The as I've said several times before, line 1 of the amended Form 8606 will have a zero on line 1 because with the contribution returned there is no contribution to report. You'll also have a zeros other lines in part 1 where you previously had non-zero amounts. Leave line 6 blank since it's not involved in any calculations on Part I.

D

dmertz

Employee

If there was a loss in value of the overall IRA account while the $7,000 was in the account, a proper return of the $7,000 return of contribution would have resulted in a distribution of less than $7,000. If $7,000 was distributed, it seems that you requested a regular distribution, not a return of contribution, in which case you may have no changes to your 2021 tax return and a $7,000 distribution that is reportable on your 2022 tax return that may be substantially taxable (if you have other money still in your traditional IRAs) and, if you are under age 59½, subject to an early-distribution penalty. A regular distribution be indicated on the Form 1099-R with code 1 or code 7 depending on your age.

For example, if the IRA lost 10% in the interim, a proper return of the $7,000 contribution would have resulted in a distribution of $6,300, normally calculated by the IRA custodian when asked to make an explicit return of contribution.

The lost value is not reportable.

S

shr22Author

Thanks for your reply, but it is very confusing.

As I described on my original post, my contribution ($7000) was returned to me under "Excess Contribution".

I'm just trying to get my non-deductible contribution back without paying tax twice. What do I need to do??

D

dmertz

Employee

"My Custodian returned $7000 to me" in your original post above seems to say that exactly $7,000 was paid to you from the IRA. Did the custodian actually distribute less than $7,000 to you?

Under no circumstances will you being paying taxes twice on the same money.