Hi All:
Apologies for any cross-posting, but, I am flummoxed and I'm having trouble resolving something.
Husband-Wife each had $6,500 Excess IRA Contributions in 2018.
Accordingly, they paid 10% Penalties on Form 5329 on their 2018 and 2019 Income Tax Return.
The Excess IRAs were Withdrawn during 2020.
Merrill Lynch issued two 1099-R's for 2020, one which I feel is Correct and one which I feel is Incorrect.
Why they are not the same, is....well....mind-boggling?
Wife's 1099-R Has: Box 1, Gross Distribution, $6,500. Box 2a, Taxable Distribution, $0. Box 7, Distribution Code P, Excess Contributions.
Looked GOOD to me.
Husband's 1099-R Has: Box 1, Gross Distribution, $6,500. Box 2a, Taxable Distribution, $6,500. Box 7, Distribution Code 1, Early Distribution.
UMMM....WHAT?
I shared this problem with Merrill Lynch, since, after all, they are the Custodian and Issuer.
First, THEY said, that, I have this backwards, the one that is "Incorrect is Correct" and the one that is "Correct is Incorrect," but, they aren't going to correct the Incorrect 1099-R."
UMMM....
....I essentially told M-L, "What are you talking about?" (but....well....maybe I'm wrong). But, still, both 1099-R's should be the same. I fail to see ANY of their logic.
After telling them this, their next Email states:
"You can only do a prior year and current year removal of excess. The contribution that needed to be removed was made in 2018 correct? The removal of excess was completed in 2020, with that being said they would only be able to remove 2019 and 2020 contributions as excess. Any other contributions would need to be removed as a normal distribution and be self-reported, I believe they can do this on the IRS form 5329."
They've referenced Pub 590-A Pages 33 and 34, which, doesn't seem to indicate this.
I've coded this on Form 5329, obviously, as "2020 Distributions of Prior Year Excess Contributions."
So, this is a mess.
I truly think that the Financial Advisor REALLY SCREWED UP with something originally on one of the Excess Contribution repayments, and he really, really doesn't understand ANY of this.
The Financial Advisor is interacting with M-L's Compliance Department and cannot even get his story straight.
This is my observation after reading through their long EMail chain.
Second, what about the EARNINGS on the Excess Contributions that were in the IRA?
If I am correct, wouldn't there be two additional 1099-R's for Reporting Taxable Earnings of the Excess IRA Contribution, as in, Box 1, Gross Distribution, $X,XXX. Box 2a, $X,XXX, $0. Box 7, Distribution Code 8 , Excess Contributions Earning? Not to mention, they should have withheld Federal Taxes.
This has just gotten out of hand AND I am exhausted with this.
Thanks in advance for any thoughtful responses.