A code T in box 7 of 1099-R is for a Roth IRA distribution, when an exception applies. It is used for a distribution from a Roth IRA if the IRA custodian does not know if the 5-year holding period has been met but:
Although not subject to penalty, it's entirely possible that some or all of the distribution is taxable. Be sure to click the Continue button on the Your 1099-R Entries page and answer the follow-up questions to allow TurboTax to calculate the taxable amount of this distribution.
I found your reply on the right track, but incomplete.
My 1099-R has box 7 marked with T and it is a Roth distribution, that respects the qualified distributions rules, but once I enter it into Turbotax it shows up as taxable in form 1040 4.b.
Should I NOT enter the amount indicated in the 1099-R? Or what should I do, please?
Thanks a lot
This would be really helpful as I am running into the same issue and the investment company is claiming this should be tax free.
Many financial institutions, perhaps most, use code T for those over age 59½ even though you have met the 5-year requirement to make the Roth IRA distribution a qualified distribution, requiring you yourself to assert that you have met that requirement. In TurboTax you simply indicate that you opened your first Roth more than 4 years prior to the beginning of the year in which you received the Roth IRA distribution (prior to 2015 with respect to a 2019 Roth IRA distribution). TurboTax asks this question after you click the Continue button on the Your 1099-R Entries page.
I am having the same issue! Is there a fix in the works? Definitely should not be taxable!
You are correct. As your distribution is not taxable, Code T in the 1099-R for a Roth IRA distribution means that there is an exception.
What do all the codes in Box 7 of the 1099-R mean?
The code(s) in Box 7 of your 1099-R helps identify the type of distribution you received. We use these codes and your answers to some interview questions to determine if your distribution is taxable or subject to an early withdrawal penalty.
Enter the information on your 1099-R as it appears. If you have concerns about the accuracy of the information, contact the payer listed on the form to issue a corrected 1099-R, if necessary.
As your distribution is not taxable, Code T in the 1099-R for a Roth IRA distribution means that there is an exception.
That's an inaccurate statement. Code T means that any portion of the distribution that is taxable is not subject to penalty.
My 1099-R from Morgan Stanley has distribution code T (Roth), but Turbo Tax 2020 is treating the distribution as taxable???
Code T means that Morgan Stanley didn't know if the Roth IRA had been held for 5 years yet in which case it qualifies for tax free treatment. You need to tell TurboTax you had the account for more than five years when it asks or you can get Morgan Stanley to issue you a corrected 1099-R with code Q. Or it may be taxable.
How we need report in your Turbo Tax? I use Turbo Tax 2021 and 1099-R Gross Distribution accumulate in the Adjusted Gross income. Why? And how we need include these 4 1099-R forms in the Turbo Tax 2021?
I asked the same question. Maybe need ignore these 1099-R? Can some professional from Turbo Tax answer?
Yes 1099-R's must be entered.
Enter a 1099-R here:
Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).
OR Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.
Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.
[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]
Same issue with the 1099R. Mine is a NON-spousal inherited ROTH IRA and the bank refuses to change the code from “T” even though the ROTH was open over 5yrs while the acct holder was alive.
Will TurboTax ask follow-up questions so that the distribution is not taxable?
Will the FREE version cover this scenario? If not, which version does?
Code T indicates there is no penalty because an exception applies. Some financial companies use code T instead of code Q when reporting such distributions on Form 1099-R, but since you know that it has been more than 5 years since the Roth IRA was established, code T gets the same tax treatment as code Q, entirely nontaxable and reported only on Form 1040 line 4a. In TurboTax, the taxable amount of this distribution is $0.
TurboTax will walk you through this. You will need TurboTax Online Deluxe and the software will walk you through the change.
Thanks @DianeW777!
I have another question regarding an inherited Traditional IRA. I inherited this IRA 8yrs ago and this is the first yr I was asked whether I need to fill out form 8606. And If the IRA had a basis? I was never asked this before. How would someone know if there was a basis? If there is no way to find out at this point what do you do?
The only way to know if there was a basis would be from old tax returns showing the 8606. Without that form, you can't prove basis. You can get a tax transcript and see if there is an 8606 in there. It will also show the distributions and tax return so you can see if there is a difference. Most people do not have a basis, but some do. See About Form 4506-T, Request for Transcript of Tax Return
Thanks @AmyC!
If I am requesting a transcript I would have to ask for every yr that acct holder had the IRA. Is that correct?
Also, what would be a scenario where someone chooses to have a basis/8606?
And in the event I found out they did, I would then have to amend all the yrs I didn’t use the basis?
@t231 wrote:
Thanks @AmyC!
If I am requesting a transcript I would have to ask for every yr that acct holder had the IRA. Is that correct?
Also, what would be a scenario where someone chooses to have a basis/8606?
And in the event I found out they did, I would then have to amend all the yrs I didn’t use the basis?
1) You only need the last filed 8606, but an 8606 is only filed if there was a distribution from the IRA or a new non-deductible contribution was made.
2) Usually income too high to deduct when covered by a retirement plan at work. Otherwise there is little reason to make a nondeductible contribution to a Traditional IRA when a Roth IRA is always non deductible an has many other advantages.
3) Yes, if you had other distributions.
It is unusual for an inherited IRA to have any meaningful basis that would make more then a few dollars savings.
Turbotax Premier certainly doesn't walk you through this bug in the software. I wasted hours trying to figure out why an obviously non-taxable, Roth distribution that I inherited 10 years ago even though Turbotax asked for the name of the deceased and the year I inherited it (2012). Apparently the software isn't smart enough to know that 2012 is more than 5 years ago. Eventually, I typed in a zero in box 2A of the imported 1099-R. I'm not sure what the IRS will think about tinkering with a downloaded 1099-R but it's the only way I found to fix the problem.
@agent86 wrote:
Turbotax Premier certainly doesn't walk you through this bug in the software. I wasted hours trying to figure out why an obviously non-taxable, Roth distribution that I inherited 10 years ago even though Turbotax asked for the name of the deceased and the year I inherited it (2012). Apparently the software isn't smart enough to know that 2012 is more than 5 years ago. Eventually, I typed in a zero in box 2A of the imported 1099-R. I'm not sure what the IRS will think about tinkering with a downloaded 1099-R but it's the only way I found to fix the problem.
The code that the payer put in box 7 tells it how to do that. What code in in box 7 on your 1099-R and is the IRA/SEP/SIMPLE box checked or did you check it by mistake?
@agent86 Yes exactly! It wasn’t asking the proper questions so that the return would reflect a non-taxable distribution.
Funny enough, the IRS FREE FILE version of yrs past asked whether the ROTH was held for 5yrs which made it non taxable but the paid deluxe version doesnt! Which is ridiculous.
The code in box 7 is "T," and the IRA/SEP/SIMPLE box is NOT checked. I did see that the T code was probably causing a problem and I don't know why my broker used it so I will discuss this with them. However, I think the Turbotax questions following 1099-R entry should have resolved the problem.
On another note, I've been using Turbotax for many years while doing IRA/Roth contributions, rollovers, conversions, and distributions. Not once has this software generated a form 8606 so there is no way for me to go back now for the purpose of accurately determining the basis of my several accounts. In retrospect, I should have used a pro.
@agent86 wrote:
The code in box 7 is "T," and the IRA/SEP/SIMPLE box is NOT checked. I did see that the T code was probably causing a problem and I don't know why my broker used it so I will discuss this with them. However, I think the Turbotax questions following 1099-R entry should have resolved the problem.
On another note, I've been using Turbotax for many years while doing IRA/Roth contributions, rollovers, conversions, and distributions. Not once has this software generated a form 8606 so there is no way for me to go back now for the purpose of accurately determining the basis of my several accounts. In retrospect, I should have used a pro.
Code T means that it is a qualified distribution but the 1099-R issuer does not know if the 5 year rule has been met so TurboTax must ask the questions. If you have owned the IRA for more then 5 years then the plan administrator must know that the 5 year rule has been met and the code should have been a "Q" (that means a qualified distribution and the 5 year rule has been met) . Complain to the plan administrator that issued the 1099-R with the wrong code.