1099-R Roth IRA Contributions Withdrawal (Early)

[codingisfun]

This past year I rolled over my 401K to 2 IRA's - a traditional IRA for the pre-tax portion, and a Roth IRA for the after-tax portion (I was making Roth contributions to the 401K). 

$97,732.21 > rolled to a Traditional IRA, non taxable direct rollover code G on the 1099-R. This is all fine and correct, no taxes impacted.

$40,208.63 > rolled to Roth IRA, non taxable rollover code H directly to Roth IRA. This 1099-R is fine and correct, no taxes impacted. This 1099-R from the 401K includes the below:

Box 1 Gross Distr. $40,208.63 

Box 2A Taxable Amt $0.00

....

Box 5 Employee Contributions $21959.28

Box 6 Net unrealized appreciation $0.00

Box 7 Code H

...

Box 11 2017

The issue is that after I rolled over to the Roth IRA, I took a distribution from the Roth IRA of just the employee contributions, $21,959 (box 5 amount). I am younger than 59 1/2, however this should not be taxable as I did not withdraw any investment earnings, only contributions which can be taken out at any time. 

The Roth IRA 1099 shows the below information. Fidelity refuses to update the information to reflect the info from the 401K 1099, as they claim they do not calculate the taxable portion for IRAs . They advised me that they checked the taxable amount not determined box, and I can work with a CPA to determine the taxable portion. Here is the information for the problematic 1099-R that is causing taxes to be owed:

Box 1 Gross Distr. $21959.00

Box 2A Taxable Amt blank

Box 2b Taxable amount not determined box is checked

....

Box 5 Employee Contributions blank

Box 6 Net unrealized appreciation blank

Box 7 Code J- Early Distribution of Roth IRA

...

Box 11 Blank

Since the taxable portion should be 0.00, where can I show this was only contributions? I am only prompted with questions about qualifying exceptions (first time home purchase, medical, disaster etc), however nothing on turbotax seems to be checking if these are contributions vs earnings. How can I file this to show that I only took out contributions and shouldn't owe any taxes on this withdrawal?

[ThomasM125]

If you enter the form 1099-R in TurboTax correctly, with the code J in box 7, your distribution will not show as taxable in TurboTax. You may be subject to a penalty for early withdrawal, but you can avoid this by indicating that you held the investment for five years and you contributed the same amount as you withdrew. You will see these questions in TurboTax after your enter the form 1099-R.

You can view your form 1040 and look on line 4(b) to make sure the distribution is not showing as taxable. You can look on schedule 2, line 8 to see if you are receiving any penalty for your distribution.

You can view your form 1040 while working in the online version of TurboTax by following these steps:

While working on your return in the Federal section of TurboTax:

   1.  Choose the Tax Tools icon on your left menu bar

   2.  Tools

   3.  View Tax Summary

   4.  Choose the Preview my 1040 on your left menu bar

[codingisfun]

Thank you Thomas.

By answering the 5 year rule question, and inputting the contributions, I can see that this distribution is showing correctly a taxable amount of 0.00 on line 4(b) of the 1040. 

However, the taxes owed never impacted my federal amount. It's only increasing the state amount (Massachusetts). Do you know why this is impacting the state amount - and if there is a similar way to show this is not taxable via the 5 year rule and contributions?

[DawnC]

Massachusetts does not tax ROTH IRA distributions provided certain conditions are met.  They follow the Federal standards.   However,  Massachusetts does not allow a deduction for contributions to a traditional IRA.   You will have to keep track of your basis to get an exclusion when you take a distribution.  Massachusetts does NOT follow the federal guidelines in this case.

When you go through your MA state return, you will be asked about the same 1099-Rs and will be able to indicate if any of the state exclusions apply.   The state information will not update as you go through the federal portion, the changes will be made when you go through the state return.   

Excluded from your Massachusetts gross income for the year paid: (you can find this list about halfway down the page-Roth Individual Retirement Accounts (IRA)

• Income you earned on the contributions while in the Roth IRA account
• Distributions from a Roth IRA account made to you are excluded from federal gross income. A distribution is excludable if the IRA is held for 5 years and it meets 1 of the following conditions:
  • You were at least 59 and a half years old when it was distributed
  • You are disabled
  • The distribution is made to a beneficiary or your estate on or after your date of death
  • The distribution is paying for a qualified first time homebuyer expense (up to $10,000)
    (If a distribution is made before the 5-year holding period expires, or doesn't meet 1 of the 4 above conditions, the distribution is not excluded from Massachusetts gross income. Any earnings on the contributions are included in federal and Massachusetts gross income instead.)
• Distributions from traditional and Roth IRAs to qualified charities. This applies to:
  • Distributions made on behalf of taxpayers at least 70 and a half on the distribution date in 2014
  • Distributions made up to $100,000 per year