Roth 401K Partial Distribution (Contributions only) is being taxed on Full Amount

[bgoehler76]

I have a 1099-R from Edward Jones for a Gross Distribution of $16,500 for 2023 from a Roth 401K.  That form shows "Taxable amount not determined" (no Federal tax withheld either), and Box 7 is shows Code "J" for Early Withdrawl from Roth 401K.  I am 47 years old, so well below the 59 1/2 cutoff.  Box 5 "Designated Roth Contributions" is $0 on this 1099-R form, and after calling Edwards Jones, they informed me it's my responsibility to track this, and that all financial institutions report this same way (they will not change my 1099-R).  However, prior to making those withdrawls (it was a series of smaller withdrawls that added to the $16,500), I confirmed with Edward Jones each time that the full $16,500 was covered by Contributions and does NOT tap into earnings.  But, they do not report that on this 1099-R, as it's "my responsibility".  The account was opened in 2015 (longer than 5 years ago).  My understanding is this withdrawl is NOT taxable and there should be NO penalty because I'm only taking out original contributions.  What is the correct course of action to reverse the taxation in TurboTax to avoid getting hit with taxes on this distribution?  Do I need to add the $16,500 to Box 5 as "my contributions" (even though it's not reported from Edard Jones 1099-R), or do I need to change the "J" (Early Distribution from Roth 401k) in Box 7 to the code 7B to show "Normal Distribution from a Designated Roth Account" (even though that's not what is reported on the 1099-R)?    I  want to make sure I do this right!  Thank you for any insight here!

[AnnetteB6]

Do not make any changes to your Form 1099-R.  It should be entered into your return just as you received it.

Adding the basis for your Roth IRA into your tax return should take care of the issue of TurboTax taxing the distribution.

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.  You should enter the whole basis for the Roth account instead of just enough to cover the distribution that you received.  The amount you enter for the basis will be reported on Form 8606 and a TurboTax worksheet that can help you keep track for the future.

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:

• 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 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.

[dmertz]

Code J indicates that you received a distribution from a Roth IRA, not from a Roth 401(k).  Box 5 of the Form 1099-R has nothing to do with a distribution from a Roth IRA.

You must enter the Form 1099-R as received.  Be sure to click the Continue button on the page that lists the Forms 1099-R that you have entered, then, when asked, enter your basis in Roth IRA contributions and Roth conversions.

If the money was originally in a Roth 401(k) and was subsequently rolled over to a Roth IRA, you should have received and reported a code-H Form 1099-R for the year in which the rollover occurred.  The amount in box 5 of that Form 1099-R would have become contribution basis in your Roth IRA.

[bgoehler76]

Thank you AnnetteB6, this was very helpful, and I stepped through the process as you described!

One follow-up that would help me and the community, if I could...   You mentioned to enter the whole basis for the Roth account instead of just enough to cover the distribution that I received.  For 2023 tax filing - Is this basis figure to enter for the End of 2022 (start of 2023) before the withdrawl took place, or is this basis at the end of tax year 2023 AFTER the withdrawl took place (so it would be the balance of basis remaining after the withdrawl)?  I have records for either, I just want to check if I should take my end of 2023 remaining basis and add the amount of the withdrawl to that (there was more than enough contributions in the account to cover this withdrawl).  It seems that amount entered greatly changes the tax calculation.  Thank you!

[ThomasM125]

When asked to enter your basis you would enter the value at end of 2022 before you took the distribution in 2023.

[bgoehler76]

Thank you ThomasM125, I appreciate the quick response.  I had made contributions in 2023 as well before (and even after) the withdrawl, but it sounds like the IRS doesn't take that into account.  I will calculate the end of 2022 and proceed.  Thank you!