1099-R for in-service Roth distribution

[delta_hotel]

Hello experts,

I'm trying to use Turbo Tax to estimate the tax impact of an in-service Roth distribution I mistakenly made (too late for me to correct) for estimating 2023 taxes.  I'm over 59 1/2 (63 years old), however the 401K Roth plan has only been in existence for 3 years.  I guessed what should be on my 1099-R and entering it into Turbo Tax since it was a 2023 distribution.  Turbo tax is calculating a tax bill as though the whole amount is to be taxed.  All the money in the Roth is after tax contributions.  Admittedly, I never had a 1099-R before so maybe I guessed wrong on what I put in the 1099-R boxes.  I admit that I should have waited 5 years before doing a distribution, but the penalty is not to double tax all the distribution.

In box 7, I put distribution code 7B.  Turbo tax treats the whole distribution as though it has never been taxed. I left empty line 2a to indicate none of the distribution put in line 1 is taxable.  Also, checked the box "taxable amount not determined", but still Turbo Tax is treating the distribution as though it never had been taxed.  

Any help here would be greatly appreciated!

Best,

Dave

[NCperson]

@delta_hotel - 7B is not the correct code.  it's going to be a "T" or a "Q" when you get the form next year. 

since you are over 59.5 but the Roth has not been open for 5 years, only the earnings are subject to tax. the IRS presumes that ALL the contributions are distributed before ANY earnings. 

it might be easier to just do this by hand

1) how much did you contribute to the Roth IRA over those 3 years? 

2) how much was the distribution? 

3)  2) - 1) is the earnings and is taxed at your marginal tax rate. if 2) -1) is less than zero, then you didn't withdraw any earnings. 

because you are over 59.5. there is no 10% penalty.  

[delta_hotel]

Thank you so much for your input.  I hope you are right with your answer.  Your calculations are for a regular Roth, however since this is a 401K Roth (different rules), I believe your earnings to be taxed are determine by the pro-rata rule.  That is, your distribution*(balance - cost basis)/balance is the amount of earnings to be taxed from the distribution.  I might be wrong with my understanding since I cannot get Turbo Tax to align with my hand calculations.  I will keep trying and update the message when I get my hand calculations to align with Turbo Tax.

Besides the validation of my understanding of this bone head move I made, my overall tax situation is complicated and doing this one piece by hand ignores it influence on my final estimated taxes.

Thanks again for your help!

Dave

[dmertz · Accepted solution]

Code 7B is correct.

Because the Roth 401(k) is not yet qualified, the distribution is a proportionate mix of nontaxable contribution basis and taxable earnings.  Box 1 will show the entire gross amount distributed and box 2a will show the taxable portion.  The amount from box 1 will be included on Form 1040 line 5a and the amount from box 2a will be included on Form 1040 line 5b.

[delta_hotel]

Perfect.  With a lot of reading on the topic, I came to the exact same conclusion.

Thank you very much for your insights.

Best regards,

Dave

[dmertz]

I should have also mentioned that a minimum of 20% of the amount in box 2a was required to be withheld for federal taxes (more than 20% only if you requested more to be withheld), so the amount withheld for federal taxes will be in box 4.