In Jan 2022, my wife and I both contributed the max $6k to our Roth IRA accounts. In December, it turns out we were above the MAGI limit to be eligible for Roth contributions. I am able to recharacterize and backdoor for myself. Easy.
My wife had a large Rollover IRA, however, and rather than fight with pro-rata stuff, we just decide to do a removal of excess contributions for the full $6000 (with the understanding that any earnings would be taxed). I used Vanguard's Removal of Excess Contributions portal to do so. Thought everything went off without a hitch.
Fast forward to today, I receive a letter from the IRS showing a $4,783 distribution that is taxable. I go check the 1099-R for that account from that year which shows the following:
Box 1 (Gross Distribution): $4,783
Box 2a (Taxable Amount): $0
Box 7 (Distribution Code): 8,J
Box 16 (State Distribution): $4,783
(everything else blank)
Go back to my bank records for that period, sure enough that $4,783 ended up in my checking account. The remaining $1,217 stayed in the Roth IRA settlement account. The IRS is now attempting to tax the $4,783.
So I've got a few questions:
1) Why was the $6k split up like that and only part of it distributed?
2) Why does the IRS see this $4,783 as taxable? Even if this was not a removal of excess contributions, should this not be viewed as removal of principal and thus not taxable?
3) What should be my next steps here? I am assuming contacting Vanguard, but with their run around, I would like to go in with a clear strategy and instruction on what they need to do to make any fixes.
My wife had a large Rollover IRA, however, and rather than fight with pro-rata stuff, we just decide to do a removal of excess contributions for the full $6000 (with the understanding that any earnings would be taxed). I used Vanguard's Removal of Excess Contributions portal to do so. Thought everything went off without a hitch.
Fast forward to today, I receive a letter from the IRS showing a $4,783 distribution that is taxable. I go check the 1099-R for that account from that year which shows the following:
Box 1 (Gross Distribution): $4,783
Box 2a (Taxable Amount): $0
Box 7 (Distribution Code): 8,J
Box 16 (State Distribution): $4,783
(everything else blank)
Go back to my bank records for that period, sure enough that $4,783 ended up in my checking account. The remaining $1,217 stayed in the Roth IRA settlement account. The IRS is now attempting to tax the $4,783.
So I've got a few questions:
1) Why was the $6k split up like that and only part of it distributed?
2) Why does the IRS see this $4,783 as taxable? Even if this was not a removal of excess contributions, should this not be viewed as removal of principal and thus not taxable?
3) What should be my next steps here? I am assuming contacting Vanguard, but with their run around, I would like to go in with a clear strategy and instruction on what they need to do to make any fixes.
Statistics: Posted by basicbrewing — Thu May 09, 2024 7:05 pm — Replies 0 — Views 75