Unfortunately, there is no special deduction or penalty avoidance for taking money out of your Roth IRA to refinance your home.
However, you are allowed to take a deduction for certain expenses related to your refinancing (ie: points paid).
Please see the following link for more information about mortgage refinancing tax deductions:
https://turbotax.intuit.com/tax-tools/tax-tips/Rental-Property/Mortgage-Refinance-Tax-Deductions/INF...
To avoid double
taxation on the withdrawal of Roth contributions, when you get to the screen
that titled "Enter Prior Year Roth IRA
contributions", make sure you are entering the total amount of all
your previous Roth contributions. (see screenshot)
You can always
withdraw contributions (but not earnings) that you made to your Roth
IRA tax and penalty free at anytime. Additionally, the Ordering rules for
withdrawals from a Roth IRA are: first from regular contributions, then from
Conversion and rollover contributions, on a first-in, first-out basis and
finally from Earnings on contributions.
The withdrawal of earnings are considered taxable income and if this is not a qualified distribution, you may be subject to additional penalties.
Please refer to this
IRS link for more information about Roth IRAs:
https://www.irs.gov/publications/p590b/ch02.html#en_US_2015_publink1000231071
To enter
your 1099- R in TurboTax Online or Desktop (you may need to upgrade to
report these distributions), please follow these steps:
- Once you are in your tax
return, click on the “Federal Taxes” tab ("Personal" tab in
TurboTax Home & Business)
- Next click on “Wages and
Income” ("Personal Income" in TurboTax Home & Business)
- Next click on "jump to
full list" or “I’ll choose what I work on”
- Scroll down the screen until
to come to the section “Retirement Plans and Social Security”
- Choose "show more",
then IRA, 401(k),Pension Plans (1099-R) and follow the onscreen
instructions
- Select
continue
when you get to
the screen with the list of retirement funds
- About 4 screens in, you will
get to the screen asking about prior year contributions
Please note that all
distributions will be reported on your tax return (whether or not
they are taxable) on Form 1040 on line 15(a) (or 16(a) but only the taxable
portion will show on your return as taxable on line 15(b) (or 16(b)).
To preview 1040 in TurboTax Online:
- Sign into https://myturbotax.intuit.com/
- Under Tax Timeline, click on
Continue your return
- Go to "My Account"
> "Tools"
- Under the Tools Center,
select "view tax summary"
- Select "Preview my
1040"
