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?

[DianeW777]

It depends.  The following information provides the details about the 5-year rule. A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

• IRS Publication 590b

It is made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.

The payment or distribution is:

• Made on or after the date you reach age 59½,
• Made because you are disabled (defined earlier),
• Made to a beneficiary or to your estate after your death, or
• One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).

Exceptions.

You may not have to pay the 10% additional tax in the following situations.

• You have reached age 59½.
• You are totally and permanently disabled.
• You are the beneficiary of a deceased IRA owner.
• You use the distribution to buy, build, or rebuild a first home.
• The distributions are part of a series of substantially equal payments.
• You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income (defined earlier) for the year.
• You are paying medical insurance premiums during a period of unemployment.
• The distributions aren't more than your qualified higher education expenses.
• The distribution is due to an IRS levy of the qualified plan.
• The distribution is a qualified reservist distribution.

[Dpuperu]

@DianeW777 Thank you for the information. But does the same apply if the distribution is taken from contributions, not earnings? In most of the references I found, I see that if it is from contributions we can withdraw anytime tax free and penalty free.

[dmertz]

@Dpuperu , because your first contribution to a Roth IRA was less than 5 years ago, distributions from your Roth IRA are not qualified distributions.  Click the Continue button on the page that lists the Forms 1099-R that you have entered and, when 2021 TurboTax asks, enter the amount of your Roth IRA contributions made for years prior to 2021.  TurboTax will prepare Form 8606 Part III to calculate the taxable amount of your distribution, which will only be the earnings that were distributed from the Roth IRA.  Your original contributions are distributed first, earnings last.

[mdh0905]

Well, in my situation, I haven't made any contributions to the ROTH, as it is inherited. Since it is 5 years since any money has been added (if not more), and I have to take all of the money within 10 years anyway, I cashed this ROTH out to make a downpayment on my house. 

As far as I can tell, it should be non-taxable, but it is showing up as taxable (and quite a sizable number too). How can I fix this, or do I just give up and use a different tax service? Phone support / chat was no use, person couldn't see past the script they were reading. 

[dmertz]

@mdh0905 , when entering a Form 1099-R that reports a distribution from an inherited Roth IRA, TurboTax requires that you enter the taxable amount inbox 2a of TurboTax's 1099-R form despite the fact that box 2a is blank on the form provided by the payer.  Since it's been more than 5 years since the decedent made the first contribution to the Roth IRA, enter a zero in box 2a of TurboTax's form.

[mdh0905]

No dice. I put in the 0 dollar amount for box 2a, and I'm still showing a huge tax on it. I am under 59 1/2, but I'll still be under the age in 5 more years... 

[dmertz]

You must also answer Yes when TurboTax asks about this being an inherited account.  (I'm assuming that you are not a surviving spouse who chose to treat the Roth IRA as your own.  If you were and did so, the account is no longer an inherited account.)

Death of the participant eliminates the age requirement for qualified distributions from an inherited IRA.

[Ajax176]

I had the exact same scenario where I had to add in my ROTH-IRA contributions and it reduced my federal taxable amount to 0. My state taxes however are still viewing the distribution as taxable since the distribution code J is still entered.  How can I get this amount to be nontaxable for State as well?

[EHill]

@toastabreads THANK YOU SO MUCH! Just the answer I needed. 

[jblsan]

I DID THE WITHDRAWAL TO TRANSFER TO WELLS FARGO NOT TO PUT IN MY POCKET.

[b12ucehuy]

klamerus2 - What did you end up filling out to fix your 1099R w/ code J as you only withdrew your contribution?    I am under 59 1/2, from my understanding, I can w/draw my original contribution after 5years, but got my 1099R w/ the following:

box 1- $5000
box 2a - blank
box 2b - checked
box 7 - distribution code - J
box 16 - $5000

[AnnetteB6]

If the distribution is being taxed as income then you may be missing the basis of the Roth IRA.

You will need to enter information about the basis of the Roth IRA in order to reduce or eliminate the amount being included as income.  

The basis of an IRA is the amount that was originally contributed.  This does not include earnings that have accumulated in the account over time.  You can take a distribution of your contributions to a Roth IRA without any penalty or income tax.  Therefore, TurboTax needs to know how much of your distribution was contributions to the account.  

After you enter your Form 1099-R, there should be some follow-up questions to go through.  One of those questions will ask about Prior Year Roth IRA Contributions.  This is where you should enter the amount that had been contributed to the account.  

If you do not see those follow-up questions, keep reading below for another method to enter your Roth IRA basis:

Go to Deductions and Credits > Retirement and Investments > Traditional and Roth IRA Contributions and click Start or Update.  

This will bring you to a screen with checkboxes to indicate what types of accounts you had in 2023.  Be sure that Roth IRA is checked.  Click Continue. 

If Traditional IRA is checked or if you have a spouse that had either type of account, the next questions will not pertain to your Roth IRA.  Continue through this section until you are asked whether you made any contributions to your Roth IRA for 2023.  This is the beginning of the section where you will enter details about your Roth IRA, including the basis.

Continue answering the questions according to your situation.  On the screen where you see Let Us Track Your Roth IRA Basis, click Yes. 

Then, on the screen titled Enter Prior Year Roth IRA Contributions, this is asking for your total contributions for years prior to 2023 (basis).  If your basis exceeds your distribution, then the distribution will not be taxable.  If the distribution exceeds your basis, then the excess will be taxable.

@b12ucehuy 

[b12ucehuy]

Thank you so much AnnetteB6

I figure it out 

On form 8606  section 3. Line 22 is the Roth basis you noted (the amount of money I contributed). This should be $5500 for me and  Line 25c should come out to be $0.