All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

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Pioneer
Posts: 1
Registered: ‎01-28-2016

Reversal of IRA contribution in same tax year?

I contributed $5000 to traditional IRA in 2015, then withdrew all the funds (with $3 interest) a couple of months later (still 2015).    I know that (according to pub. 590A)  IRA contributions which are withdrawn in same year are not subject to any penalty (as with typical IRA early withdrawl).  However - bank sent me from 1099-R showing the $5000 withdrawl as a early withdrawl of IRA.  How do I deal with this?  (Tax software asks for 1099-R info - but does not seem to give me any opportunity to "explain" that it should not really be considered an IRA at all...)

 

Thanks for any help,

Dan

Tax Pro
Posts: 5,275
Registered: ‎02-23-2016

Re: Reversal of IRA contribution in same tax year?

Hi danfromdetroit,

 

Welcome to the community.

 

Correct, the bank will show an early withdrawl.  The way to remove the tax penalty (since you are not subject to it) is to file Form 5329 (Additional Taxes on Qualified Plans).  Enter code "12" for your exception number on Line 2 of Form 5329 to indicate a Form 1099-R that's incorrectly showing a code "1" for the early distribution penalty in Box 7 due to an early withdrawl in the same year as the contribution.  With Form 5329 included with your tax return you will not be charged a penalty on your IRA withdrawl.

 

Hope this helps you out & plese ask if you have any other questions.

Pioneer
Posts: 1
Registered: ‎05-12-2017

Re: Reversal of IRA contribution in same tax year?

Wife and I withdrew $25,000 total from our IRAs to make a big purchase.  $12,000 ($6,500 me and $5,500 her) of it we deposited in January 2017 and would have claimed it while doing taxes next year (2018).  So the 1099s we will receive next year will be $12,000 off.   So we both complete a Form 5329 and put code 12, correct?    Line one we put $25,000 and line two we put the $12,000 (or individuallly $6,500 and $5,500).  I don't mind paying the 10% penalty on the 13k, just not the other 12k.

 

since I do online taxes (with HR) will this work?

Highlighted
Tax Pro
Posts: 5,275
Registered: ‎02-23-2016

Re: Reversal of IRA contribution in same tax year?

Hi Preticiza,

 

Welcome to the H&R Block community.

 

Yes, you will need to fill out Form 5329 and enter code "12" on Line 2.  However, you also must attach a statement explaining the situation (that it was a reversal of a contribution made in 2017), so your return must be mailed to the IRS.

 

Also, what did you spend the money on?  There are exceptions for certain things such as education, medical expenses, and first-time home purchases so you may not have to pay the 10% penalty on any of the distribution if you qualify for one of the other exceptions.

 

Louis,

Senior Tax Advisor (Tampa, FL)