IBA Compliance Connection

Your go to source for compliance!

A customer with a traditional IRA made an impermissible $5,000 contribution that we plan to return to him. On the 1099-R form, should we use Code 8 or Code P to reflect the return of this excess contribution? He made the contribution in 2018 for 2017.

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admin

In our view, the appropriate code to reflect the return of the excess contribution is Code 8. The instructions for form 1099-R require the use of Code 8 for excess contributions for the 2017 taxable year. In this case, the customer made the contribution for tax year 2017. Consequently, we believe that the Code 8 is the correct code.

For resources related to our guidance, please see:

  • IRS Instructions for Forms 1099-R and 5498, Distribution Codes (“8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2017. Use Code 8 for an IRA distribution under section 408(d)(4), unless Code P applies. Also use this code for corrective distributions of excess deferrals, excess contributions, and excess aggregate contributions, unless Code P applies. See Corrective Distributions, earlier, and IRA Revocation or Account Closure, earlier, for more information.”)
  • IRS Instructions for Forms 1099-R and 5498, Distribution Codes (“P—Excess contributions plus earnings/excess deferrals taxable in 2016. See the explanation for Code 8. The IRS suggests that anyone using Code P for the refund of an IRA contribution under section 408(d)(4), including excess Roth IRA contributions, advise payees, at the time the distribution is made, that the earnings are taxable in the year in which the contributions were made.”)