Contribution withdrawal from Roth IRA

[Ruby11]

I withdrew $6000 in 2021 from a Roth IRA that I had contributed since around 2000. My financial advisor stated i could pull out some of my contributions tax-free. The 1099-R came with a code J. I prefer to not get into entering Roth IRA info to get TurboTax to calculate what is taxable. Is it possible to simply enter the right combination of codes in the 1099- screen to get the $6000 as not taxable? If so, what are the proper codes to use?

[MinhT1]

Code J indicates an early distribution from a Roth IRA. This is the case if you are younger than 59 1/2.

Distributions of contributions from a Roth IRA account are tax-free. In TurboTax, when entering your 1099-R, you will be asked to enter your prior year contributions to your Roth IRA. If you do not remember but are sure that you contributed more that this year's withdrawal, you can enter an approximate number which is higher than $6,000. Your Roth IRA distribution will be tax free.

[dmertz]

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@Ruby11 wrote:

I withdrew $6000 in 2021 from a Roth IRA that I had contributed since around 2000. My financial advisor stated i could pull out some of my contributions tax-free. The 1099-R came with a code J. I prefer to not get into entering Roth IRA info to get TurboTax to calculate what is taxable. Is it possible to simply enter the right combination of codes in the 1099- screen to get the $6000 as not taxable? If so, what are the proper codes to use?

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No, it's not permissible to change anything on the Form 1099-R.  Doing so might produce the correct taxable amount but it won't produce a correct tax return and you'll likely get a letter from the IRS indicating that you underreported income.  You must click the Continue button on the page that lists the Forms 1099-R that you have entered and provide the additional information that TurboTax requests, in particular the amount of the Roth IRA contribution basis, so that TurboTax can prepare the required Form 8606 Part III to calculate the taxable amount of the distribution.

[Opus 17]

Withdrawal of contributions from a Roth IRA is always tax-free.

However, withdrawal of amounts due to conversions, and withdrawal of earnings, may be taxable, depending on several factors.

The ordering rules means that you always withdraw withdrawals first, then conversions, then earnings.  

You must keep track of your Roth IRA contributions and conversions.  If audited, you have the burden of proof to show you withdrew contributions and not earnings.  Turbotax wants the information to help you keep track, and to pay the tax if you end up withdrawing conversions amounts or earnings early.  If you don't enter the correct amounts and let Turbotax track your Roth for you, you may not be covered by the accuracy guarantee if the IRS audits you and assesses tax and penalties for a taxable Roth withdrawal.  

You can't change the codes on the 1099, but when you are asked for prior contributions, enter any number larger than the withdrawal amount.  That will make the withdrawal non-taxable, but you are taking the responsibility to demonstrate that you are only withdrawing contributions.

[CMA99]

I am having the same issue. I did a 17,000 withdrawal based on my contributions.  Roth was opened in 2009.  I have left the gains untouched.  Right now TT is telling me I owe 2700 in taxes and this should have been a tax free event. I am really struggling to figure out how to fix this.   Do I understand this advice correctly - we should be entering this information into Box 13 and 14?  

[dmertz]

Click the Continue button on the page that lists the Forms 1099-R that you've entered, then tell TurboTax the amount of your basis in Roth IRA contributions and conversions.  TurboTax will then include these on Form 8606 Part III to calculate that the taxable amount of your Roth IRA distribution is zero (because you took out none of the earnings).

[user17520349272]

I am in a similar boat, but in different water. I withdrew from a Roth IRA, which was rolled over from a Roth 401k. I withdrew less from the IRA than I contributed to the 401k. I have not actually made a contribution to the IRA, other than the rollover amount. What are the proper hoops to jump through to set the basis on my 8606 part III to reflect this situation?

I am tempted to "Enter Prior Year Roth IRA Contributions" with the actual 401k contribution amount like suggested above, but I don't think a 401k contribution technically qualifies as an IRA contribution. There are a couple options, but none of them seem like the correct one.

Just out here running in circles with this mostly great software...

Thanks

[dmertz]

Unless you had after-tax basis in your 401(k), your Roth conversion is entirely taxable.  Traditional 401(k) elective deferrals are pre-tax, not after-tax.

[NCperson]

@user17520349272 assuming you did the conversion and the distribution from the Roth in the same year, you should have two 1099-Rs, one to reflect each situation.

The conversion should be taxable.  What is the code in Box 7?

The distribution should not be taxable, but depending on how long ago the Roth has been established and your age, it could be subject to a 10% penalty.  what is the code in Box 7?  

[dmertz]

TurboTax's wording where it asks for the contributions to the Roth IRA are oversimplified.  Your contribution basis in the Roth 401(k) indeed becomes contribution basis in the Roth IRA when the Roth 401(k) is rolled over to a Roth IRA, so where TurboTax askes for the amount contributed to the Roth IRA, include the contribution basis rolled over from the Roth 401(k).  If you entered a code-H Form 1099-R into TurboTax and that Form 1099-R included in box 5 your Roth 401(k) contribution basis, TurboTax would automatically include the box-5 amount in your Roth IRA contribution basis.