Looking for some guidance on the correct way to enter earnings returned on an excess IRA contribution.
In 2018, taxpayer had an excess traditional IRA contribution of 4030. This was corrected by the return due date, but I missed adding the earnings to the 2018 1040 & am now amending to include them. My problem is that the earnings are further reducing the IRA deduction allowed, so additional funds & earning would need to be withdrawn. A 2019 1099R is being issued with Box 2 taxable amount of 344, box 7 code P -PY excess contribution + earning. I’m entering a 1099R in 2018 1040X, taxable amount of 344, but entering code 8 - CY excess contribution + earning. Is it correct that the earnings on the 2018 excess contribution further reduce the IRA contribution allowed for 2018? If additional funds are withdrawn there will be additional earning that will reduce the contribution again. Any help with what I’m missing here would be very much appreciated. Thank you.