So for example, if I contributed 18k within 5 years to my roth IRA accounts, and I only withdrew 15,900 I should not be having penalties or owe any taxes. How do I tell Turbotax that when I am filing my taxes?
If you entered everything in your 1099, then continue through until you get to the questions asking if you owned it for 5 or more years, answer and keep going until you get to the question "Enter Prior Year Roth IRA Contributions".
If you had contributions of more than $12,900, TurboTax will remove all the taxes on the Roth. If your contributions prior to 2023 were less than the $12,900 you withdrew, it will have you pay taxes on the excess as it is looking at it as distribution of earnings not just your contributions. Continue through to the end of that section.
How old are you? If you are under 59 1/2 years old, you would still be liable for an early distribution penalty of 10% unless you meet one of the exceptions for the penalty. As you walk through the interview questions after entering your 1099-R, you will be asked about the exceptions.
If you are over 59 1/2 TurboTax will use your date of birth that you entered in the personal info section and the code in box 2 of your 1099-R to determine that your distribution is not taxable.
Is this new for Roth IRAs? I was really under the impression that I can withdraw my contributions regardless of age and I will not be paying any penalties or taxes. Below is what I researched
Roth IRA Contributions: For Roth IRAs, you can withdraw your contributions (the principal amount you deposited) at any time, regardless of your age, without incurring taxes or penalties. This is a key feature of Roth IRAs and differentiates them from Traditional IRAs.
Earnings Withdrawal Rules: The 10% early distribution penalty and potential taxes apply to the earnings (not contributions) withdrawn from a Roth IRA if you are under 59 1/2 years old and do not meet certain exceptions. This penalty does not apply to withdrawn contributions.
Please note that I only withdrew my contribution, not any of the earnings!
What is showing in box 1 and box 5? Did you enter your contributions as more than what you have in box 1? Did you enter anything in any of the other boxes?
What is the code in box 7?
So I have three Roth IRA accounts, I am still waiting for my last 1099-R from a different financial institution. I currently have two 1099-R forms.
First 1099-R form:
- Box 1 - 9,900
- Box 2b is checked
- Box 5 has nothing
- Box 7 Distribution code is J
Second 1099-R form:
- Box 1 - 3,000
- Box 2b is checked
- Box 5 has nothing
- Box 7 Distribution code is J
Those are the only boxes that are filled out for both 1099-R forms
If you entered everything in your 1099, then continue through until you get to the questions asking if you owned it for 5 or more years, answer and keep going until you get to the question "Enter Prior Year Roth IRA Contributions".
If you had contributions of more than $12,900, TurboTax will remove all the taxes on the Roth. If your contributions prior to 2023 were less than the $12,900 you withdrew, it will have you pay taxes on the excess as it is looking at it as distribution of earnings not just your contributions. Continue through to the end of that section.
Ah, I did not realize there are follow up questions after entering the forms. Thank you for that! It looks better now!
i have the same issue except it is fine with the Fed Return but my state (NJ) goes up through the roof as soon as i import my 2 1099-R's. Can someone assist why NJ is making some or all of my withdrawal of principal taxable but the Fed isn't (as it shouldn't)?
Thanks
Please review this New Jersey page on Roth IRAs.
As I read it, two things come to mind
1. Were the contributions to the Roth IRA taxed by NJ before they went in?
2. Did you go though the NJ interview after entering the 1099-Rs?
@silverdj
Thank you @BillM223 for your help, time and reply.
Yes my principal (contributions) invested in my Roth IRA was already taxed by NJ and yes I went all the way through the entire TurboTax process up to the point of doing the final review, checks etc. I will try to do so again but I truly think there is a bug with TurboTax since my Fed isn't making it taxable but NJ is and as the link you provided states;
"The New Jersey Income Tax treatment of Roth IRAs conforms to the federal treatment. Direct contributions to Roth IRAs are not deductible and qualified distributions from Roth IRAs are not includable in New Jersey income."
To accurately to see how Turbo Tax treated your NJ Roth contribution, we would like to see a diagnostic copy of your return. The information in this file is a sanitized copy meaning there is no personal information, only numbers so that we can troubleshoot in depth, check for calculation issues, and to see how certain items are applied. In your case, this will be used to see how your Roth contribution were applied to your return. Here is how to order.
For Turbo Tax online, go to tax tools>tools>share my file with agent. When this is selected, you will receive a token number. Respond back in this thread and tell us what that token number is.
If you use the desktop version, go to the black stripe at the top of the program>online>send tax file to agent. Once you receive the token number, reply back in this thread and let us know what that token number is.
Thank you @DaveF1006 .
I will do so when time permits me.
I wonder if this is why I'm getting taxed on some of my contributions/principal. In answering the NJ questions at the end, I noticed this (I have a code "J" in which Vanguard said all 1099-Rs have a code J from them).
I'm guessing I need Vanguard to send a corrected 1099-R with no "J" in the distribution code?
Nonqualified Distributions are distributions not made under one of the four circumstances above and have Code J or T in box 7 of the 1099-R : or
Distributions made within the five-taxable-year period which began when you first contributed to your IRA.
If there is a Code T in box 7 of the 1099-R, and the distribution was made after the five-taxable-year period, it will be considered a qualified distribution and not taxable in New Jersey.
If there is a (1) Code J in box 7 of the 1099-R, and (2) the distribution was made after the five-taxable-year period, and (3) the distribution was allocated to a a first-time home buyer distribution as defined by the IRS, the home allocation will be considered a qualified distribution and not taxable in New Jersey.
@DaveF1006 Token # is 119475. Thank you so much.
Its a bit confusing when it asks to fill in some things both at the fed and NJ state level with regards to principal contributions etc so that too may lead to some errors but i still believe my NJ portion for the 1099-Rs shouldn't be taxed. Thanks again
This is being received as from a 2021 tax return. Is this correct or should this be from 2023? if so, the token# should be 7-digits. Would you go through the steps again to get a 7-digit number or if this is 2021, let us know and we will proceed to trouble shoot.
[Edited 02/22/22|3:15 pm PST]
@DaveF1006 , no for 2023. I withdrew contirbutions from my Roth IRA in 2023 and i am filing in 2023. All principal was invested 2010-2021
To clarify, can you repeat the steps I gave to get another token? I can't open a 2023 tax return with a six-digit token#. It should be seven.
Apologies for the delay @DaveF1006 as I am truly grateful for your time and assistance.
Try 1191858 as I just did it again. This should be for tax year 2023.
I also spoke with Vanguard and they believe it should be a "J" for the code as it is on the 1099-R and that TurboTax should treat it similar to how it treats the code on the Fed return (not taxable) and told me to let TurboTax know there may be a bug.
Thanks again!
Yes, unfortunately your Roth Distribution is not a qualified distribution unless it meets one these four criteria. i suspect you fall within the first bullet point. Even you you meet the holding period requirement, the income is disqualified because you haven't reached age 59 1/2 and your 1099R is coded J.
Please read the following link in the NJ website that briefly explains how non-qualified distributions are treated.
Thank you @DaveF1006 however NJ states it would treat it as the Fed would. The Fed is not taxing it since the money withddrawn was initial, already taxed principal. One of the benefits of a Roth IRA is you can with draw your prinicipal tax and penalty free. The NJ website states it treats it as the Fed does and that should be non taxable income. So I believe there's a flaw with Turbo Tax as NJ should not be taxing it just as the Fed is not taxing it. Worst case, I will file with an accountant manually and stop using TurboTax (unfortunately).
It depends. If you read the opening paragraph in the NJ link I sent, it says The New Jersey Income Tax treatment of Roth IRAs conforms to the federal treatment. Direct contributions to Roth IRAs are not deductible and qualified distributions from Roth IRAs are not includable in New Jersey income. This means that both these conditions need to be met to exclude this from NJ income to conform with the federal treatment. This is how this is interpreted.
Since this distribution is non-qualified, then it is taxable under the NJ tax code. I don't mean to argue this point with you but I must follow the language that is written in the code.
Thanks @DaveF1006 so let me reply to everything you stated (my comments below in italics):
It depends. If you read the opening paragraph in the NJ link I sent, it says The New Jersey Income Tax treatment of Roth IRAs conforms to the federal treatment. = Correct. So if TurboTax isn't taxing and isn't penalizing my withdrawal of initial investment on the Federal Return, NJ should not be either.
Direct contributions to Roth IRAs are not deductible and qualified distributions from Roth IRAs are not includable in New Jersey income. This means that both these conditions need to be met to exclude this from NJ income to conform with the federal treatment. This is how this is interpreted. = Correct. My point is it is qualified since, again, I'm not withdrawing earnings but rather my prinicipal initially invested, which is one of the pro's to having a Roth IRA. You can always take out your prinicipal tax and penalty free. Just not your earnings etc (before 59.5). From Forbes.com for reference: "Once you contribute money to a Roth IRA, you can withdraw your original contributions at any time without paying any sort of tax or penalty. This means there’s almost no reason not to squirrel away money in a Roth."
Since this distribution is non-qualified, then it is taxable under the NJ tax code. I don't mean to argue this point with you but I must follow the language that is written in the code. = No worries. we just don't see eye to eye. I called an accountant and he agrees with me. He believes TurboTax should not tax nor penalize it for NJ if it's not for the Fed tax return.
Worst case, I sadly have to stop using TurboTax, which would be upsetting because I've been using TT for a long time and love it.
I also have this issue, but I am not getting the questions about whether the account was open for 5 years and about prior year contributions.
Please follow these steps to get the follow up questions in the federal interview about a Roth IRA distribution:
If you do not get these follow-up questions then please let us know what is your code in box 7?
Thank you @rjbartlett91 for trying to assist.
I answer all those questions and it doesn't matter what I enter for Prior Year Roth IRA Contributions. Whether i put 0, whether I put the exact principal I withdrew, or whether I put more than the exacct principal. Also, I'm wondering if TurboTax is getting confused somewhere because it next asks me a question about my IRA to Roth IRA conversion that i did some years ago and imports a $ amount from my 2022 return (which I can't find on my 2022 return physically and oddly). So i wonder if these items are somehow making NJ state taxing me on my principal even though it should not be (similar to how the Fed acts)
Thanks