I've had my Roth IRA for more than 5 years (1st Roth 401k rollover over 5 years). I withdrew money due to COVID impact. So why am I getting taxed on distribution?

[a_sal6]

I am not getting penalized, but I am getting taxed. Why?

[ColeenD3]

Having it for 5 years is only part of the qualification.

You can always withdraw contributions (but not earnings) that you made to your Roth IRA tax and penalty free at any time. Additionally, the Ordering rules for withdrawals from a Roth IRA are: first from regular contributions, then from Conversion and rollover contributions, on a first-in, first-out basis and finally from Earnings on contributions.

Please note: A qualified distribution from a Roth IRA is tax-free and penalty-free, provided that the five-year aging requirement has been satisfied and one of the following conditions is met:

• Over age 59½
• Death or disability
• Qualified first-time home purchase

•  For Roth IRAs, you can always remove post-tax penalty contributions (also known as "basis") from your Roth IRA without penalty.

[a_sal6]

Thanks for the response. Understood. Turbo tax did not ask me when was my first contribution or Roth rollover. They also did not ask what were the amount of my contributions. So how did they determine what to tax me on (contribution vs earnings?). I am younger then 59 and I've contributed more than what I withdrew, so the distributions should be tax free since these are contributions that I already paid taxes for. Any thoughts? Thanks again.

[ColeenD3]

What code is on your 1099? 

Some Roth IRA distributions may be partly taxable. Form 1099-R, box 7 codes J, Q and T identify a Roth IRA distribution, and determine the tax treatment.

• Code Q means the requirements for tax free distributions are met. This distribution is not taxable.
• Code J means an early withdrawal where the 5-year holding period is not met and there is no known exception. The earnings are taxable and without an exception, a 10% penalty applies.
• Code T means an early withdrawal and it is unknown if the 5-year holding period has been met and an exception applies. If the holding period is not met, the earnings are taxable.

For both Codes J and T, an exception means you are age 59½ or over, disabled, or the participant has died, so there is no penalty.

If you did not see the questions about the Roth basis as you entered the Form 1099-R, an additional way to enter the basis of your Roth IRA is this.

• On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
• This opens a box where you can type in “Roth Ira” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
• The search results will give you an option to “Jump to Roth Ira”
• Click on the blue “Jump to Roth Ira” link

This will bring you to a screen with check boxes to indicate what types of account you had in 2020.  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 2020.  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 2020 (basis).  If your basis exceeds your distribution, then the distribution will not be taxable. 

Finish the rest of the follow-up questions about your Roth IRA. 

[Pat Kryzak]

How do I answer the question  about Roth IRA Contributions prior to 2021. 

I did not record the base amount. I moved all my investment in 2017. Can I use that amount as my base.  I retired in 2013 and have not contributed since .I am 78. 

[DianeW777]

Since you are 78 years of age, and you are taking distributions from your Roth IRA, it should all be tax free if you help a Roth IRA longer than 5 years.  You should indicate you owned the Roth IRA more than five years when that question comes up.

1. You should also indicate 'Yes' you had at least one Roth IRA open in 2021
2. If you had withdrawals before 2021 answer 'Yes'
3. Your contributions do not count earnings which would have been included in your rollover in 2017 (Roth IRA to Roth IRA).
   • Note: if you have owned a Roth IRA longer than five years and based on your age you are now taking distribution you can include the rollover amount from 2017 since none of your distributions would be taxable (including earnings).