I received roth ira distribution. 1099r shows it code J but it is qualified because it as all contribution, not earnings. Turbo tax is taxing it. How do I fix this?

[ColeenD3]

Code J:

Early distribution from a Roth IRA

Use Code J for a distribution from a Roth IRA when Code Q or Code T does not apply. 

Code J indicates that there was an early distribution from a ROTH IRA. The amount may or may not be taxable depending on the amount distributed and the taxpayer's basis in ROTH IRA Contributions. This information must be entered for the software to calculate the taxable amount.

[dmertz]

To reach the question in TurboTax that asks for your basis in Roth IRA contributions, click the Continue button on the page that lists the Form 1099-R that you've entered.

Also, this is an early distribution, not a qualified distribution, requiring Form 8606 Part III to be included with your tax return to show the calculation of the taxable amount (which will be zero if the distribution was less than your contribution basis).  TurboTax will automatically prepare Form 8606.

[toastabreads]

I am trying to follow your instructions but I'm not getting to Form 8606 at all. I've tried searching the help section for Form 8606 and there are instructions of how to get it kicked off but it seems outdated because it says to search for an exact term and there will be an option that shows up, but when I follow those instructions I don't get that to show up.  Any advice on how to kickstart Form 8606?

[dmertz]

@toastabreads , what is your reason for needing Form 8606?  If it's the same as indicated in the original question that started this thread, that you received a code-J Form 1099-R, there is no avoiding TurboTax including Form 8606 in your tax return; entry of a code-J Form 1099-R forces the use of Part III of Form 8606 to calculate the taxable amount from the amount in box 1 of the Form 1099-R and the additional information you provide after clicking the Continue button on the page that lists the 1099-Rs that you have entered.

[LeonardS]

To kickstart Form 8606 follow these steps:

1. Open your return if it isn't already open.
2. Inside TurboTax, search for this EXACT PHRASE, INCLUDING THE COMMA: 8606, nondeductible ira contributions
3. Select the Jump to link in the search results.
4. Proceed through the IRA section, answering questions as you go.
5. When you reach the screen Any nondeductible contributions to your IRA? answer Yes, then continue. We'll generate and fill out the 8606 behind the scenes.

[toastabreads]

Thanks for your help @dmertz!

Yeah it was the same reason as above. I guess I was expecting to see the form, and not just have it done in the background. Thanks for clarifying. I just see that TurboTax is considering this as taxable, but for the same reasons as mentioned above, I think this is in error and want to fix it and my understanding was I do this via Form 8606.

[toastabreads]

Ok, I found the answer to my question. I went to "Tax Tools" in the bottom left of the screen, then clicked Tools, and searched for Form 8606 and it went to that page for me where I was able to input the information needed.  Hopefully this helps anyone else that comes behind me and sees this post 🙂 

[reggie13955]

I used the withdrawal (under 7k) from a Roth IRA to buy my first home, in the 1099-R the code in box 7 shows as J, I believe I am entitled to a hardship deduction and the withdrawal not subject to an early withdrawal penalty or tax on any gains, turbotax does not seem compute such a break.  Would appreciate any insights. Thanks

[DanaB27]

Yes, if you had qualifying expenses for your first home then you do not have to pay the 10% early withdrawal penalty and the distribution will not be taxable if you had the Roth IRA for 5 years since it is a Qualified Distribution (up to $10,000).

Please follow these steps:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top and type “1099-R”
3. Click on “Jump to 1099-R”  and enter your 1099-R
4. Answer "yes" when TurboTax asks if you used the money to buy your first home and enter the amount.
5. Click "continue" after all 1099-R are entered and answer all the questions.
6. Continue until "Did you use your IRA to pay for any of these expenses?" screen (this screen won't come up if you only withdrew your contributions) and enter the amount under "First Home Purchase".

For your information, you can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. Please make sure you are entering your net contributions to the Roth IRA when TurboTax asks.

@reggie13955

[Dpuperu]

@toastabreads  thank you for mentioning the details. Did you withdraw from contributions before 5 years since you first contributed to that ROTH IRA account? If yes, did 8606 form help you in avoiding taxes and penalty on Roth IRA? I mean, did you get refund? I did withdraw thinking there will not be taxes or penalty if it is from contributions, not earnings. But TurboTax and other tools are taxing it. I even contacted some tax agencies and they were unable to help me.

[toastabreads]

@Dpuperu it did thankfully! It went from me having to pay 5-6k to receiving a return of 5-6k which was in-line with what I expected.. so I am just VERY happy that I did this process and didn't pay even more money 🙂  I also reached out to TurboTax pros and they were kind of at a loss, but this completely saved my tax return. Hopefully it does that same for you!

[toastabreads]

I remember seeing Turbo Tax ask me if I used my withdrawal for a home purchase or if it was hardship, so I would strongly recommend going down the same rabbit hole as me with this 8606 form and I think you'll find what you need. Don't give up! You'll get that money back I'm sure 🙂 

[Dpuperu]

@toastabreads Great! I'm happy for you. I started the filing process in January and I still did not complete filing as I didn't want to pay double taxes and penalty. Some tax agencies told me that it I'm supposed to pay taxes and penalty as my ROTH IRA was opened just an year ago (should be 5 years or more). But I don't think is it correct. That's why I asked you if yours was active for more than 5 years.

I finally found your post that matches my situation. And with your help I was able to find 8606 form. I hope I will be able to get my money back. Thank you.

[toastabreads]

Yeah I don't believe the 5 year thing applied to our situation either.. but at least we'll be in the same boat if we get audited lol! Good luck!