TurboTax automatically creates Form 8606 for any early Roth IRA distribution.
An early distribution from a Roth IRA will have code J in box 7. If the Form 1099-R has code T or Q in box 7, it's not an early distribution. If the Form 1099-R does not have code J, T or Q in box 7, the distribution is not from a Roth IRA.
If the From 1099-R includes code B in box 7, the distribution is from a designated Roth account in an employer plan like a 401(k), not from a Roth IRA, and is not reported on Form 8606. Because such a distribution is not from an IRA, the Form 1099-R itself reports the taxable amount in box 2a. Such distributions are a proportionate mix of taxable and nontaxable amounts from the designated Roth account.
From Form 1099-R, it includes a code J in box 7, indicating distributions from Roth IRA. I've held this Roth IRA for more than 15 years, and the distributions in 2023 were substantially less than the contributions I've made to the Roth over the years.
Given the tax-free nature of qualified Roth IRA distributions, my distributions are reported on my tax return so that they are not treated as taxable income. My goal is to zero out the taxable amount of Roth distributions.
Could you please tell me how to report these distributions on Turbotax return to ensure they are not taxed as income?
Thank you!
I have a question about TurboTax. When I enter early Roth IRA distributions, Form 8606 is not automatically generated. Can you help me understand how to get TurboTax to create Form 8606 automatically? I want to ensure that my early distributions are not treated as taxable income and that I can zero them out. Are there any additional steps I need to take to achieve this?
Thank you!
TurboTax will indeed automatically create Form 8606 whenever you enter a code-J Form 1099-R. However, to get the correct calculation on Form 8606 you must click the Continue button on the page that list the Forms 1099-R that you have entered and then, when TurboTax asks, enter or confirm your basis in Roth IRA contributions so that TurboTax will include this amount on Form 8606 line 22. On Form 8606 the amount on line 22 will be subtracted subtracted from the amount of distributions. With line 22 being larger than line 21, the resulting taxable amount will be zero and your contribution basis carried forward will be reduced by the amount of your distribution.
I am in a similar situation, and this all tracks. However, I haven't contributed anything to my IRA. I contributed to the 401k that then rolled over to become my IRA. So how do I enter those contributions so the deduction zeros out as taxable income? Because I am tempted to enter my 401k contributions as IRA contributions but that is not the correct way to go about this.