Chris R Posted March 7, 2018 Report Share Posted March 7, 2018 Client made a 2017 contribution in May of 2017 then took it back out before the year was up. Received a 1099r with $6804 in box 1 and $304 in 2a and coded 1 and 8. As I understand it she should get the 6500 back tax free but should pay tax and possibly penalties on the earnings of $304. The software is making everything taxable and subject to penalty. How do I fix that? Is there some box I need to mark that I am not? Thank you Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 8, 2018 Report Share Posted March 8, 2018 27 minutes ago, Chris R said: Client made a 2017 contribution in May of 2017 then took it back out before the year was up. Received a 1099r with $6804 in box 1 and $304 in 2a and coded 1 and 8. As I understand it she should get the 6500 back tax free but should pay tax and possibly penalties on the earnings of $304. The software is making everything taxable and subject to penalty. How do I fix that? Is there some box I need to mark that I am not? Thank you Part III of Form 8606 1 Quote Link to comment Share on other sites More sharing options...
Chris R Posted March 8, 2018 Author Report Share Posted March 8, 2018 I have looked at that part but it says Distribution from a Roth which this was not. Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 8, 2018 Report Share Posted March 8, 2018 12 hours ago, Chris R said: I have looked at that part but it says Distribution from a Roth which this was not. Oh. Well, I'll assume it was a Traditional IRA contribution then because of the amount. If he qualified to make a deductible contribution of $6500, put the $6500 on the bottom of Form 1040. If he did not qualify to make a deductible contribution, I believe you can handle it in Part I of Form 8606. 1 Quote Link to comment Share on other sites More sharing options...
Chris R Posted March 8, 2018 Author Report Share Posted March 8, 2018 I figured it out. Ugg. There was an 8606 in the return from the prior year and all I needed to do was delete it and then the 1099r was treated correctly. I hate when it is some dumb thing I just didn't think about. Thank you though for trying to help me. 1 Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted March 11, 2018 Report Share Posted March 11, 2018 On 3/7/2018 at 6:37 PM, Chris R said: Client made a 2017 contribution in May of 2017 then took it back out before the year was up. Received a 1099r with $6804 in box 1 and $304 in 2a and coded 1 and 8. As I understand it she should get the 6500 back tax free but should pay tax and possibly penalties on the earnings of $304. The software is making everything taxable and subject to penalty. How do I fix that? Is there some box I need to mark that I am not? Thank you Box 1 is the amount of the distribution and Box 2 is the taxable part of that distribution. If your client doesn't meet one of the exceptions and is under the age of 59 1/2 then he is subject to the 10% penalty and 20% Federal tax at the time the distribution was taken. Code 1 is premature distributions with no known exceptions and code 8 is excess contributions plus earnings/excess deferrals taxable in 2017. You are correct the tax and penalties are assessed on the amounts in box 2. What software are you using? That would be helpful to know to further assist you. Use form 8606 for the traditional and Roth IRA contributions. 4 Quote Link to comment Share on other sites More sharing options...
SaraEA Posted March 11, 2018 Report Share Posted March 11, 2018 Chris, if your client already had an existing IRA, it's not as simple as "I put money in one year and decided to take it back out." You have to consider the whole IRA. The prior 8606 shows the after-tax basis. When you take money out you can't say "I want to take this particular contribution out." You have to allocate it to before- and after-tax amounts. I'd put that 8606 back in. 4 Quote Link to comment Share on other sites More sharing options...
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