What Tax Forms (if Any) need to be filled out if I am only withdrawing contributions to my Roth IRA

[dbryda23]

I am looking to withdraw contributions only from my Roth IRA and want to confirm what (if any) tax forms I need to fill out.  In reviewing online, I see references to form 8606 (part III for distributions) as well as 1099-R.  However, I wasn't sure if 1099-R was only to report earnings, which in this case I won't be taking out.  I am also under 59 1/2.  I am under the assumption that you can withdraw your contributions to a roth regardless of age, where it is after tax money.

If contributions withdrawn, would my IRA custodian provide a 1099-R form regardless (and this would be designated as a qualified withdrawal), and thus I would just fill out the fields on the 1099-R form, and Turbo Tax would then generate a 8606 based off this?  Looking to know the scope of what I need to report so I can do this for when submitting my 2023 return. Thank you

-Dan

[dmertz · Accepted solution]

The Form 1099-R reports the gross amount distributed from the Roth IRA.  Because the Roth IRA custodian has no way to know whether any distribution consists of contribution basis, conversion basis or earnings, box 2b of the Form 1099-R will have a blank box 2a and box 2b Taxable amount not determined marked.  Because the distribution to you will not be a qualified distribution because you are under age 59½, the taxable and nontaxable amounts are determined on Form 8606 Part III which TurboTax will prepare automatically when you enter the code-J Form 1099-R and answer the follow-up questions to tell or confirm to TurboTax your basis in contributions and conversions.  If the amount distributed is less than your basis in Roth IRA contributions, the result on Form 8606 Part III will be that the distribution is entirely nontaxable.

[NCperson]

@dbryda23 - just be careful - yes, the contributions can be distributed and there is no tax and no penalty for doing so.  You already paid any tax prior to contributed the money in the first place.

However, the earnings are a different story.  Thy are taxable.  They are also subject to a 10% penalty since you are under 59.5 years old (unless one of the exceptions applies).

Say you cotnributed $100,000 over the years to your Roth and it is now worth $125,000.  You want to withdraw $100,000.  The IRS assumes all the contributions are withdrawn first, any Conversions from a Trad IRA are 2nd and all the earnings are last.  In this example, there would be no tax and no penalty because you are only withdrawing what you originally contributed. But anything else you attempt to withdraw (the remaining $25,000 and any further earnings on the $25,000) is subject to ordinary tax as well as the 10% penalty.  The 10% penalty can be waived if you meet one of the few exceptions (and one of those exceptions is being over 59.5 years old); the ordinary tax can not be waived. 

[dbryda23]

Thank you very much for the detail and reply.  That was the assumption I was under that, regardless of age, you could take your contributions at any time untaxed.  I was presuming that a 1099-R form would be sent by the custodian and I would key that info in and it would take care of that and the 8606 without tax for me? Thanks

-Dan

[dbryda23]

Thank you very much!  I followed these steps by going into my 2022 turbo tax, creating a separate desktop file name and playing with the response.  Initially, my taxes went up, but after completing all the questions, the taxes corrected back to my refund from last year and indeed a 8606-T form was created for me.  It would appear, despite me being under 59.5, I still qualify to have the distributions given to me, as long as the distribution is less than the cost basis as you note.  So, I presume I will receive a 1099-R end of year tax form from my financial institution noting such info you note.  Thank again

-Dan

[Opus 17]

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@dbryda23 wrote:

Thank you very much for the detail and reply.  That was the assumption I was under that, regardless of age, you could take your contributions at any time untaxed.  I was presuming that a 1099-R form would be sent by the custodian and I would key that info in and it would take care of that and the 8606 without tax for me? Thanks

-Dan

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Form 8606 is something that you generate as part of your tax return if you make non-deductible contributions or withdrawals to a traditional IRA.  (The IRS expects contributions to a traditional IRA will be tax-deductible, so if you choose not to deduct them, your tax return will include a form 8606 documenting that fact.  You should keep a copy of this form for the rest of your life--it is an exception to the general rule that you can discard tax papers after 3 or 7 years.)

When you withdraw from a Roth IRA, you will get a 1099-R that you enter on your tax return.  By law, you always withdraw contributions first, conversion amounts second, and earnings last.  You will need to tell Turbotax whether your withdrawal is contributions, conversions or earnings, using your own records.  The IRS will double-check your work and may send you a tax bill if you get it wrong, but you have the primary responsibility to keep those records.  

Form 8606 is only needed if part of your Roth IRA withdrawal includes money that was from a conversion of a regular IRA that contained non-deductible contributions (a "back door" Roth conversion).  If you never made non-deductible IRA contributions, you will not have a form 8606 in your tax history and you can ignore that part of the instructions.   If some of your Roth money is from a backdoor conversion, you may need that information to determine the taxability of the Roth IRA withdrawal.