You are correct, the cost basis for Roth IRAs is important when you take an early withdrawal. This is because the money you receive comes off the cost basis first, rather than being prorated.
In order to make the software respond to this, it needs to handle Form 8606, Nondeductible IRAs. The software should automatically trigger this form when there's a distribution from a Roth IRA (other than rollovers, recharacterizations, or a return of certain contributions), but if it didn't, here's how to generate form 8606:
- Open your return if it isn't already open.
- Inside TurboTax, search for this exact phrase: 8606 nondeductible ira contributions
- Select the Jump to link in the search results.
- Proceed through the IRA section, answering questions as you go.
- When you reach the screen Any nondeductible contributions to [taxpayer's] IRA? answer Yes, then continue. We'll generate and fill out the 8606 behind the scenes.
If this doesn't reduce your cost basis, please come back with more details about your Roth IRA and the documents that you have received to use in preparing your return.
