Roth IRA contribution withdrawl taxable

[ash11]

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Do I need to fill any additional form or anything I am missing to show that the amount withdrawn is only from contribution ?

[dmertz]

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.

[ash11]

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your response once I have entered 1099-R details for 401(K), TurboTax will guide me to fill Form 8606 and subtract the withdrawn amount (as nontaxable Roth conversion) to be exempted from taxation/penalty.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]

Note that you can't distribute just the after-tax basis from the 401(k) account, the distribution must be a proportionate mix of after-tax basis, and pre-tax money, so if the after-tax basis was directly rolled to the Roth IRA while the pre-tax money was directly rolled to a traditional IRA, the code G Form 1099-R will generally report the sum of the two.  To be able to report this split rollover in TurboTax you'll need to split this code G Form 1099-R into two, one for the portion rolled over to the Roth IRA and the other for the portion rolled over to the traditional IRA.

[ash11]

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. 

[macuser_22 · Accepted solution]

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.

[ash11]

This is extremely helpful my friend. It seems then I can expect to only get a single 1099-R for 401(K) which I will have to split as you suggested and report as two separate 1099-R then. And I have already received 1099-R (Roth IRA) which shows the distribution.  Is there any use of the Form-5498? I received one for the rollover to traditional IRA and the other for the ROTH IRA?

Lot of learning in the process but I sincerely appreciate so much detailed step-by-step explanation.

[macuser_22]

The 5498 is information to yiu and is used to report the receipt of the finds by the receiving trustee.

[ash11]

So will TurboTax eventually make use of the Form 5498 or just 1099-R would suffice?

[macuser_22]

Just the 1099-R.  The 5498 is information only and does not go on a tax return.

[ash11]

Hello @macuser_22  and @dmertz ,

I still need some further info here. 

As instructed, I split the 1099-R into two 1099-Rs and entered the info in Turbo Tax that reported the rollover from 401(K) to ROTH IRA and traditional IRA. Till this point Turbo Tax doesn’t report any tax liabilities.

After this I entered the 1099-R details showing the distribution from ROTH IRA. This 1099-R form has box 2b (Total taxable amount not determined - checked) and box 7 has code J. Once I provided this info, Turbo Tax reports that I have tax liabilities.  The rollover to ROTH IRA and distribution from it happened in 2019.

How to show in Turbo Tax that the money withdrawn (only contribution) from ROTH IRA account without incurring any taxes or penalties?

[dmertz]

You have uncovered a bug in TurboTax.  TurboTax is not including on Form 8606 line 24 your basis in 2019 conversions nontaxable at conversion.  My investigation shows that this bug was introduced in 2018 TurboTax; 2017 TurboTax works properly.

When you entered the Form 1099-R for the portion rolled over to the Roth IRA, the Form 1099-R on which you included the nontaxable amount in boxes 1 and 5, then indicated that you rolled the money over to a Roth IRA (not to a Roth 401(k) or 403(b)), TurboTax should have added the box 5 amount to your basis in Roth IRA contributions.  Be sure that after answered the question following the rollover to Roth IRA question that Yes, you made after-tax contributions to the 401(k) or 403(b) plan and that the box 5 amount appears as the amount of your after-tax contributions.  This amount should then be included on lines 60 and 7 of the IRA Information Worksheet to be used in preparing Form 8606 Part III to determine the taxable amount of your code J Roth IRA distribution.  TurboTax should be including on Form 8606 line 24 the amount from line 7 of the IRA Information Worksheet, but it does not.  TurboTax seems to be unnecessarily separately determining, incorrectly, the amount to include on Form 8606 line 24.

As a workaround, in the questions that follow entering the Form 1099-R for the rollover to the Roth IRA, instead of indicating that you rolled the money over to a Roth IRA, indicate that you rolled the money over to a Roth 401(k).  This will remove the entry from line 60 of the IRA Information worksheet.  Then click the Continue button on the Your 1099-R Entries page, proceed and answer Yes when TurboTax asks if you did Roth conversions before 2019 (even though you might did not have), indicate that you did a Roth conversion in 2018, then enter the box 5 amount from the Form 1099-R as 2018 Nontaxable conversions.  This will cause TurboTax to include the box 5 amount on Form 8606 line 24.

[dmertz]

@Anonymous 

I have uploaded Token 594422 showing this bug, described in the second paragraph of my comment immediately above this one.  This bug is not present in the final release of 2017 TurboTax but is present in the initial release of 2018 TurboTax and remains a problem as of R17 of 2019 TurboTax.

[ash11]

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.

1. 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
2. Was this Money Rolled Over to a Roth IRA? Answered: Yes
3. 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.

[dmertz]

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

1. 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)
2. Was this Money Rolled Over to a Roth IRA? Answered: No (again lying to TurboTax but not on your tax return)
3. Did you make any after-tax contributions to your 401(k) or 403(b) plan? Answered:  Yes 
4. Click the Continue button on the Your 1099-R Entries page
5. Do not enter anything when TurboTax asks for your Roth IRA Contributions prior to 2019 (remove what you entered there)
6. Any Roth Convesions? Yes
7. Mark the 2018 box.
8. 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.