I entered my 1099-R cited data regarding my post age 59 1/2 Roth IRA withdrawal. Upon doing so TurboTax reduced my Federal Refund. Is the correct?

[dmertz · Accepted solution]

Make sure that you clicked the Continue button on the Your 1099-R Entries page and have answered all of the follow-up questions.  Be sure to indicate whether or not you had a Roth IRA before 2014 and, if not, that you have entered your basis in Roth IRA contributions and conversions.  Failure to do so will not allow TurboTax to properly determine the taxable amount.

[dmertz]

Given the information added to the other answer, your Roth IRA distribution is a qualified distribution and is not taxable.  It should not appear on Form 8606 Part III.

The only reason that this distribution might reduce your federal refund is if it disqualifies your from receiving some or all of a Retirement Savings Contributions Credit you would otherwise be eligible to receive.

[Anonymous]

Thank you, but your guidance did not work in my case.
I obtained the 1099-R from my financial institution's website. However when attempting to download it through TurboTax to compare, a message saying the 1099 R will not be available until 15 February was received. It appears I will need to wait until it is available through Turbo Tax.

[dmertz]

If you indicate in the follow up that you had a Roth IRA before 2014, TurboTax will not include the code T distribution in taxable income on Form 1040 line 4b.  If the Form 1099-R has code Q, TurboTax automatically will exclude the distribution from line 4b.

[Anonymous]

So far I do not recall seeing Form 8606 Part III in the Turbo Tax workflow.

[Anonymous]

Should I contact my financial institution to correct the 1099 R line 7 code?

[dmertz]

You haven't mentioned that the Form 1099-R has an incorrect code.  What is the code in box 7 of the Form 1099-R provided by the payer?

[Anonymous]

Code T.  Here is the full text of the form 1099R.

IRS Box Item Value
1 Gross Distribution $3,344.00
2a Taxable Amount $3,344.00
2b Taxable Amount Not Determined Yes
2b Total Distribution No
4 Federal Income Tax Withheld $0.00
7 Distribution Code(s) T
7 IRA/SEP/SIMPLE No
12 State Tax Withheld $0.00
15 Local Tax Withheld $0.00

[dmertz]

Code T is correct.  Box 2a on the Form 1099-R provided by the payer should be blank, but any amount in box 2a will be ignored by TurboTax unless the distribution was a distribution from an inherited Roth IRA.  (For a distribution from an inherited Roth IRA, TurboTax stuffs box 2a with the amount that you tell TurboTax is taxable.)  So I don't see any real reason that the Form 1099-R needs to be corrected despite the payer putting an amount in box 2a when they should have left it blank.

[Anonymous]

Thank you for the reply. However when I input the information exactly as cited on the form, my deduction is reduced by $200.

[dmertz]

It sounds like the distribution is not being taxed but instead the distribution is making you ineligible for a Retirement Savings Contributions Credit for which you would otherwise be eligible due to making new retirement contributions for 2018.

[Anonymous]

Hello, Our communication was unexpectedly disrupted. I did not make 2018 contribution to my Roth IRA.

[Anonymous]

I spoke with my financial institution a few minutes, and they directed me to a FAQ on their webpage. However it states I must complete Form 8606. <a rel="nofollow" target="_blank" href="https://www.betterment.com/resources/common-tax-form-questions/#16">https://www.betterment.com/resou...>

Here is the statement in their website.
My taxable amount in Box 2a on my 1099-R is incorrect. Can you correct my 1099-R?
We cannot make changes to Box 2a of the 1099-R. It is the customer’s responsibility to determine the appropriate taxable portion when filing their tax return by completing the Form 8606.

The taxable amount in Box 2a on the 1099-R is frequently incorrect for Traditional IRA and Roth IRA distributions. This can happen at many investment firms. Read below to see why this is the case, and how you can correct it when filing your taxes.

The taxable portion of a Traditional or Roth IRA distribution is determined by your total amount of after-tax (no deduction allowed) contributions across all investment firms. Betterment does not know if you have made contributions elsewhere.
The taxable portion of a Traditional IRA distribution is determined by the value of Traditional, SEP, and Simple IRA accounts held by all investment firms, not just Betterment, and Betterment can’t report to the IRS information from other firms. A customer can determine the “true” taxable portion of a Traditional or Roth IRA distribution by following the instructions for and completing Form 8606.
A common error for a customer who makes an after-tax Traditional IRA contribution and converts those funds to a Roth IRA (backdoor Roth IRA contribution) is failing to report the contribution and conversion on Form 8606. If a taxpayer does not file Form 8606, the IRS will likely make a conservative estimate and assume the entire amount of the distribution is taxable (even though that may not actually be true).

[dmertz]

From the instructions for Form 1099-R regarding regular Roth IRA distributions:

"For distributions from a Roth IRA, report the gross distribution in box 1 but generally leave box 2a
blank. Check the “Taxable amount not determined” box in box 2b. Enter Code J, Q, or T as appropriate in box 7."

You got an incorrect and irrelevant canned response from the custodian.  As I said and as indicated in the IRS instructions, box 2a should have been left blank.  However, having an amount shown in box 2a will not cause any problems in TurboTax as long as you did not indicate that the distribution was from an inherited Roth IRA.  It will not force the distribution to be taxable unless you have indicated that the distribution came from a Roth IRA.

Regarding the custodian's assertion that Form 8606 is required, that's completely false because you were over age 59½ at the time of the distribution and your first contribution to a Roth IRA was a conversion contribution in 1998.  That makes your Roth IRA distribution a qualified distribution that is not to be reported on Form 8606.  The fact that TurboTax has not generated Form 8606 either means that you inadvertently indicated that the distribution was from an inherited Roth IRA or that TurboTax is NOT treating the distribution as taxable and has excluded the entire amount from Form 1040 line 4b.  Examine line 4b to see this.

The retirement contribution I was suggesting for which you might have been getting a Retirement Savings Contributions credit could have been made through your employer, reported with code D, E, F, G, H, S, AA, BB or EE in box 12 of your W-2.  It just so happens that $200 is a common amount for the credit, which it why I'm suspecting that it's the loss of this credit, not additional taxable income, that is the reason that your refund or balance due changed.