Client received a 2015 1099R with with a distribution code of "P". Box 1 is $6668 and taxable box 2a is $168. This is the first time dealing with code "P". The way I am reading it I should go back and amend the 2014 return and add the excess contributions to wages for 2014. My question is should $6500 of the $6668 be included back to wages for 2014, and then the $168 in earnings from the $6500 be included in on the 1099R for the 2015 return. Based on the 1099R it looks like it was $6500 in excess contributions and $168 in earnings on excess contributions. Thanks for any help.
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Dealing with taxable earnings from improper contribution
That just means a client likely "repaired" a retirement account, such as for excess contributions, in a year after the funds were originally placed into the account.
Most common scenario is person funds 2014 Roth IRA early in 2014, around tax time in 2015 finds out he cannot put funds in, and withdraws them in early 2015.
The "illicit" earnings from the improper funds (daily earnings from day in to day out, in relation to ALL earnings within the account for the same time period) constitute taxable income which is deemed to be 2014 (and perhaps 2015 also?) taxable income.
Yeah, it's a mess. Just be thankful you did not have to calculate the $168 in earnings!!
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