While a returned contribution made in 2022 allocated earnings would be taxable in 2022, Sec 333 of Secure still waives the penalty for corrective distributions processed after 12/29/2022, the date of Enactment of Secure 2.0:Am I confused perhaps?
It was a 2022 contribution. It was withdrawn in early 2023, but the earnings would be taxable with the 2022 taxes. And, if the law had not just changed, the earnings would have triggered a penalty in the 2022 taxes.
It seems the law changed so late in the year 2022 that the 2022 Form 5329 didn't know not to charge the penalty. (I can't find the 2022 Form instructions on the internet to see if that paragraph was there or not.)
This waiver cannot apply for excess returns of contributions made before 2022 because after the due date earnings are not returned, even if the corrective distribution is made after 12/29/2022.Section 333, Elimination of additional tax on corrective distributions of excess contributions.
Current law requires a distribution if too much is contributed to an IRA. The corrective distribution
includes the excessive contribution and any earnings allocable to that contribution. Section 333
exempts the excess contribution and earnings allocable to the excess contribution from the 10
percent additional tax on early distributions, and is effective for any determination of, or affecting,
liability for taxes, interest, or penalties which is made on or after the date of enactment of this Act,
without regard to whether the act (or failure to act) upon which the determination is based occurred
before such date of enactment.
Statistics: Posted by Alan S. — Fri Feb 23, 2024 1:50 pm — Replies 11 — Views 1040