using TurboTax with intentional Early ROTH and self-withholding

[meAtTBT]

I'm feeling like I don't see how to process my Early ROTH withdrawal in

• TurboTax Premier Desktop for 2020.

I paid myself out of my ROTH IRA during covid.

I took one withdrawal to pay down debt and have a fresh start to go back to school.  I had the investment firm take out and pay the Federal early withdrawal penalty amount in that case.  I set aside part of the money towards potential income tax on my own.

I took another withdrawal to pay my living during full-time education.  I considered this not subject to early withdrawal penalties and had the investment firm take out nothing, and set aside part of it towards potential income tax on my own.

So the 1099R reasonably says "J - income tax not calculated", and nothing else other than the combined amount for the year.

• I expect to report the full amount as income
• and then claim the part towards education as not subject to early withdrawal penalty.
• But TurboTax Desktop 2020 is saying it is all non-taxable,  (because of the "J" ?)
• and there is nowhere to discuss withdrawal reason.

Is this scenario outside the ability of TurboTax ?

[Critter-3 · Accepted solution]

What you took the Roth distribution for is immaterial. After entering the 1099-r the program will ask how much of the distribution was from your contributions. Distributions up to the amount of contributions are not taxable. Only the earnings maybe taxable and or penalized.

[meAtTBT]

Thanks so much for your reply.

I hear what you're saying about income related to contributions and separating contributions from earnings.

I'll make sure I review that;  I didn't understand it would not be income except for earnings.

I'm only 45, so it seems like I'll have to account for early withdrawal at some point.

Does that come up in a different section in TurboTax other than Income?

[dmertz]

The 2020 distribution must be reported on your 2020 tax return on form 8606 Part III where the taxable amount is calculated.  If you took out no more than your contributions, the result will be that no part of the distribution is taxable or subject to penalty; only taxable distributions from a Roth IRA are potentially subject to an early-distribution penalty.  If you qualify, you also have the option to treat the distribution as a Coronavirus-Related Distribution which gives you 3 years from the date of the distribution to repay the amount to your Roth IRA even though such treatment might not be needed to avoid tax and penalty.

Whatever amount of taxes withheld for 2020 was in excess of your 2020 tax liability will be your 2020 tax refund.

[meAtTBT]

Thank you, that is very helpful.

I also see for myself what happens in the software --  if I reduce my claimed Contributions and I do owe tax, then TurboTax Desktop asks me to fill in boxes related to how I used the money and I can put in my Higher Education amount.

[NCperson]

@meAtTBT - remember that the money you originally put into the ROTH was after tax money, so when you withdraw that principle there is no tax

However, the income generated off that principle is subject to tax (and penalties) for early Roth withdrawal. 

do you have records going back in time showing how much you contributed each year to the ROTH?

in what year did you originally open the ROth? did you meet the 5 year rule? 

[dmertz]

If the Roth IRA participant is under age 59½, the 5-year rule for qualified Roth IRA distributions is not a factor (except when using otherwise taxable money from a Roth IRA for a first home purchase).

[Opus 17]

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@meAtTBT wrote:

Thank you, that is very helpful.

I also see for myself what happens in the software --  if I reduce my claimed Contributions and I do owe tax, then TurboTax Desktop asks me to fill in boxes related to how I used the money and I can put in my Higher Education amount.

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Withdrawal of Roth contributions is never taxable.

Withdrawal of Roth conversions is sometimes subject to the 10% early withdrawal penalty but not income tax.

Withdrawal of Roth earnings is subject to income tax if you are under age 59-1/2, and is also subject to a 10% penalty for early withdrawal.

There are certain exceptions to the 10% penalty, such as for higher education expenses, a "first time" home buyer, paying medical insurance premiums during a time of unemployment, and a few other things.  You may or may not qualify for the exceptions depending on your situation. 

You will have to tell Turbotax about your Roth contributions and conversions so the program can determine the amounts subject to tax and penalties, if any.  The IRS has this information independently and should be contacting you if you report incorrect amounts and pay too little tax or penalties.  

Whatever tax you end up owing is calculated on your tax return after taking all factors into account.  If you had some withholding, you get credit for that, but you may owe more or get a refund if the withholding doesn't match the calculated tax.