Roth ira early withdrawals

[RLT4288]

I made an early withdrawal from a Roth Ira, I entered information as listed on 1099-R form.   Code used by Investment firm was T, I had the 10% penalty withdrawn and it appears in Tax.  When I enter information the penalty is not being calculated creating an error on my taxes due and refund. 

  Please help!

[MarilynG1]

@RLT4288 A Code T on your 1099-R indicates that the issuing Payor does not know if the 5-year holding period has been met.

Check your 1099-R entry again, and pay close attention to the follow-up questions. 

Click this link for more info on 1099-R Code T. 

[dmertz]

RLT4288, you had taxes withheld. You did not pay a penalty.  The 10% withheld is credited on your tax return.

Code-T distributions are never subject to penalty.  They are only subject to income tax on the taxable portion of the distribution in the relatively uncommon event that some portion of the distribution from the Roth IRA is taxable.

[JHARV]

I have 2 questions regarding Roth IRA Distributions

 1) My 1099-R shows 2 distributions (distribution code J) from my account (distribution was for the same Investment Company, but with separate amounts for 'A' shares and 'C' shares) from same payer.  Is it OK to add both amounts together under one 1099-R in TurboTax?

2) I am under 59 1/2 and received the distribution in 2020 for the total of my principal contributions from 2012 through 2018 (no contributions were made in 2019 or 2020).  Since I was under 59 1/2, but had been in the plan for over 5 years, I assumed there would not be any taxes/penalties since I did not get any distributions on earnings.

 When you get to the screen “Enter Prior Year Roth Contribution” it asks you to Confirm net regular contributions prior to 2020 that remain in your Roth IRA.  In the box on the screen it asks for “Roth IRA Contributions prior to 2020”.  Should I put amount as 0.00 since I received full distribution of all prior year contributions in 2020 and which no longer remain, or is it asking for the total contribution amounts I made in years prior to 2020?

[dmertz]

1)  You can do it either way as long as neither of these distributions has any tax withholding.

2)  TurboTax is asking for the amount of contributions that remained in your Roth IRAs as you began 2020.  If you made no distributions prior to 2020, all of your contributions remained.

[Hanyuray]

On 1040 SR there is no line 15.a or 15.b nor 16.a or 16.b  So?

Turbo Tax is treating my distributions as income, when in fact all my contributions were after-tax dollars and do deductions were taken.  There were no net gains on the funds contributed, and I'm over 59 1/2.  

[MarilynG1]

@Hanyuray On the 1040-SR Pension/IRA income shows on 4a, 4b, 5a, 5b (screenshot).

If your Roth distribution is showing as taxable, you may want to delete your original 1099-R entry and re-enter it.

Pay close attention to the follow-up questions after entering the form data.

The Code in Box 7 on your 1099-R should indicate if the distribution is non-taxable.

Click this link for info on How to Enter 1099-R. 

[Brach1]

mjdavern33 wrote that "code J indicates regular distributions, not returns of contributions."

He is WRONG. Code J is "Early distribution from a Roth IRA." Hardly an indication of "regular distributions"! Only the earnings portion (i.e., distribution minus contribution) of this taxpayer's distribution would be taxable. It would be taxed as ordinary income. If the taxpayer was under 59-1/2, he would also owes a penalty equal to 10% of the earnings portion of the distribution.

[Brach1]

Please note:  By definition, a "qualified distribution" from a Roth IRA is tax free and penalty free.

[Brach1]

MarilynG1, Employee Tax Expert:

Code T is "Roth distribution, exception applies." Code T does not indicate "Payor does not know if the 5-year holding period has been met."

If 1009-R box 7 has distribution code T, TurboTax will assume that there is indeed an exception and will not compute a penalty.

[dmertz]

I use the term "regular distribution" to describe the type of distribution that is made from a Roth IRA when the IRA custodian has not specifically been instructed to make a return of contribution or a recharacterization.  A regular distribution could be an early distribution (code J), a distribution that is not an early distribution but is also potentially not qualified (code T), or is qualified (code Q).  Simply calling a code-J distribution an early distribution in the context of the question that was asked is insufficient because a return of contribution is generally also an early distribution.

Regarding code T, TurboTax presently has a bug where TurboTax imposes an early-distribution penalty on the taxable portion of a code-T distribution from an inherited Roth IRA, so there is a case where TurboTax will inappropriately impose a penalty when code T is present.

[colozona655]

My 1099-R has a "T" on Line 7.  I input a "T" in the Turbo Tax Program.  RESULT:  Form 1040 shows the RMD from my qualified ROTH IRA as taxable.  My understanding is that RMD's from qualified ROTH IRA's are NOT TAXABLE!!!

[DanaB27]

Please make sure that you answer the follow-up questions carefully. If the Roth IRA was opened before 2018 then this will be a Qualified Distribution and tax-free. If it had been open for less than 5 years then you will have to make you calculate the taxable amount. You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. 

1. Login to your TurboTax Account 
2. Click on "Search" on the top and type “1099-R” 
3. Click on “Jump to 1099-R” and enter the Form 1099-R
4. Select "yes" to  "Did you inherit the IRA"
5. Answer if the Roth was opened before 2018 
6. If it wasn't then you need to calculate the taxable amount and enter it (click the Learn more link if needed)
7. Answer the remaining question.

@colozona655 

[dmertz]

Unless it's an inherited Roth IRA, Roth IRAs don't have RMDs.  If it's an RMD from inherited Roth IRA, TurboTax requires you to enter the taxable amount.