Roth IRA contribution withdrawl taxable

Forum|Forum|6 years ago
February 9, 2020
2 replies
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In 2019 I rolled over my post tax contribution (minus gains) from 401K to a newly opened ROTH IRA account. Then I went ahead and withdrew a portion of that contribution amount from the ROTH IRA to bring down my mortgage balance before going for a refinance. My understanding is that you can always withdraw your contributions with no tax or penalty.

I have received Form 1099-R where box 7 has the distribution code J. After importing this form, TurboTax then shows that I have tax implications. I shouldn’t be paying any taxes or penalty if I am withdrawing only my contribution portion. In my case there hasn’t been any contribution to this new ROTH IRA for years prior to 2019.

Do I need to fill any additional form or anything I am missing to show that the amount withdrawn is only from contribution ?

Best answer by macuser_22

Yes, that’s what exactly I had done. I had rolled only the post-tax contribution to ROTH IRA and the associated gains to traditional IRA. I can see in my 401(K) account two payment statements for these rollovers with the following Tax detail info.

Tax Form: 1099R
IRS Code: G
Reason Code: Roth Conversion (only in case of rollover made to Roth IRA)

How would I split this code G (Form 1099-R) into two? Will I be receiving just a single 1099-R showing the split or it will be two separate 1099-R showing the rollover made to ROTH IRA and traditional IRA?

Thanks for guiding me so far.

Assuming that your 1099-R for the split 401(k) rollover has the after-tax contributions in box 5:

TurboTax does not directly support a single 1099-R going to two different destinations.

What you must do is split the 1099-R into two 1099-Rs.

For the amount rolled to the Traditional IRA.

1) In box 1 use the original 1099-R box 1 minus the box 5 amount.

2) Box 2a = 0.

3) Box 5 = blank.

4) Box 7 = G.

5) Answer NO to the two interview questions that ask about a Roth - the default is a Traditional IRA.

For the amount rolled to the Roth IRA.

1) In box 1 enter the original box 5 amount.

2) Box 2a - 0.

3) Box 5 = original box 5 amount.

4) Box 7 = G.

5) Answer NO to the first interview question about a 401(k) Roth and YES to the rollover to a Roth IRA.

That should properly report the 1099-R. The box totals of the two 1099-R should equal the amounts on the original 1099-R.

Nothing about splitting into two 1099-R's go on a tax return - the IRS only gets the dollar amounts on the 1040 form.

dmertz

Level 15

Did you enter the Form 1099-R that reported the rollover from the 401(k) to the Roth IRA? You must do so. After entering the code G or code 1 Form 1099-R for the distribution from the traditional 401(k) and indicating that it was converted to a Roth IRA, TurboTax will include this amount in your basis in nontaxable Roth conversions to be subtracted on your Form 8606 Part Part III according to the ordering rules for Roth IRA distributions.

You can see that your basis in nontaxable Roth conversions is properly recorded in TurboTax by examining line 36 the IRA Information Worksheet.

ash11Author

Level 3

Thanks, @dmertz for letting me know that I need to also include 1099-R for the rollover from 401(K). I need to check with Fidelity why they haven’t provided me that tax form yet. So, based on your response once I have entered 1099-R details for 401(K), TurboTax will guide me to fill Form 8606 and subtract the withdrawn amount (as nontaxable Roth conversion) to be exempted from taxation/penalty.

If I may ask where exactly are you referring to look at line 36 in the IRA information worksheet? I downloaded Form 8606 and I can see Part III what you pointed out but don’t see any line 36.

Appreciate your help.

dmertz

Level 15

Thanks @dmertz again for your response.

I would like to know by when Turbo Tax would release a patch if there is a bug. Is there a way that I can get notified when this fix is made available? I do notice that meanwhile you have also recommended a workaround. I want to make sure that I have understood it correctly.

Questions presented by Turbo Tax when I have entered the 1099-R for the portion rolled over to the Roth IRA. Please let me know if there is anything incorrect in my response.

Is this 1099-R reporting a rollover of funds from a 401(k), 403(b), or government 457(b) plan to a designated Roth 401(k) or Roth 403(b) plan? Answered: No
Was this Money Rolled Over to a Roth IRA? Answered: Yes
Did you make any after-tax contributions to your 401(k) or 403(b) plan? Answered: Yes (As per your direction) - I was earlier answering it No thinking that these after-tax contributions were not done in 2019 but prior. This was likely the mistake on my part.

After I enter Yes to the above question (Q 3) Turbo Tax presents the box 5 amount as After Tax contribution to 401(K). Lastly now when I added the 1099-R showing the distribution from ROTH IRA it’s no more showing any tax liability or penalty.

Validation of the Forms generated by Turbo Tax

The IRA information worksheet generated has on line 6 and 7 the non-taxable amount (contributions made to ROTH IRA)
On the Form 8606 – Part III this is what I see in my case.
- Line 19 (total nonqualified distributions from Roth IRAs in 2019): $$ withdrawn from ROTH IRA
- Line 20 (Qualified first-time homebuyer expenses): empty
- Line 21 (Subtract line 20 from line 19): $$ withdrawn from ROTH IRA
- Line 22 (Enter your basis in Roth IRA contributions (see instructions). If line 21 is zero, stop here): $$ amount rolled over to ROTH IRA

It seems to me that Turbo Tax is computing the information correctly then. Kindly confirm if all the information that I have entered is working as expected.

No you do not have it correct and your Form 8606 is not being prepared as it needs to be. Reiterating the workaround instructions:

Is this 1099-R reporting a rollover of funds from a 401(k), 403(b), or government 457(b) plan to a designated Roth 401(k) or Roth 403(b) plan? Answered: Yes (you are lying to TurboTax to get the a suitable result in your carryforward information on the IRA Information Worksheet)
Was this Money Rolled Over to a Roth IRA? Answered: No (again lying to TurboTax but not on your tax return)
Did you make any after-tax contributions to your 401(k) or 403(b) plan? Answered: Yes
Click the Continue button on the Your 1099-R Entries page
Do not enter anything when TurboTax asks for your Roth IRA Contributions prior to 2019 (remove what you entered there)
Any Roth Convesions? Yes
Mark the 2018 box.
Enter the Form 1099-R box 5 amount in the 2018 Nontaxable Conversions box.

These actions will cause the box 5 amount to appear properly on Form 8606 line 24 instead of improperly on line 22. The information on your IRA Information Worksheet will also be sufficiently correct to handle any future Roth IRA distributions.

I don't speak for Intuit, so I have no idea when any bug fix might be implemented. If a "containment" FAQ is issued regarding this, perhaps JoeyB will post a link to it.

JE52

Level 2

Are principle withdrawl from roth taxable

AnnetteB6

Level 15

No, if you receive a distribution from a Roth IRA that does not exceed the basis of the IRA (your contributions), then the distribution is not taxable.

However, you must enter the basis of the Roth IRA into TurboTax in order for the distribution to be treated correctly.

Use the information below to do so:

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 2019. 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 2019. 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 2019 (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.

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

@JE52

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