Error in RothDistr?

[fullerjones770]

Dear Turbotax:

Daughter went to H&R Block to get her taxes done for 2025; she owed “$3,340.”  Later she asked me to check, since I use TTax.  I ran her numbers and TTax says she only owed $2,327.

Here is her problem: She started a Roth in 2023, added to it in 2024, and had $44,400 in the Roth in early 2025. She needed money and withdrew $5,000 from the Roth early and withheld $500 as the “penalty” (she thought). Later in the year, she “got well” financially and contributed $30,000 back to the Roth withholding $3,600 for the IRS.

In looking at he two versions, HRB says that line 4b is $35,000 (no line 4a), and TTax says line 4a is $35,000 and b is $30,000. That is the only significant difference.

Who is right, or have I made an error???

[AnnetteB6]

Based on the scenario you described, there are some assumptions to consider which I will explain below.  But, if the assumptions are correct, then the TurboTax calculation is correct.

The first assumption is that the money put into the Roth account came from a conversion of money in another retirement account.  The total value of the account seemed high for it to have been deposited through regular contributions because the contribution limit per year is well under the amount in the account.  Either way, the original amount converted to the Roth IRA and/or contributed directly to the account make up the basis in the Roth IRA.

Next, assuming the basis in the Roth IRA is at least $5000 (probably more), then the $5000 distribution from the Roth IRA would not be taxable.  That means that the $5000 amount should not be included on line 4b of Form 1040.

Then, if $30,000 was 'contributed' back to the Roth IRA, it must have been done through a conversion of money in another retirement account since it is to high to be considered just a contribution to the Roth IRA.  The amount distributed from the other retirement account and converted to the Roth IRA would be taxable and shown on line 4b of Form 1040.

It appears that the Roth IRA basis may not have been taken into account by the other tax company and therefore the $5000 distribution from the Roth IRA was shown as taxable.