Roth IRA Distribution before 59 1/2 for IRA distributions made for qualified higher education expenses

[ajlee777]

Hi- 

I contributed $29000 after-tax money to my Roth IRA.  I want to withdraw the $29000 amount I contributed to pay for a qualified higher education expense. 

• Based on the tax code, I believe I should not get penalized and should not get taxed again on the $29000?
• Based on my Roth IRA 2022 Form 1099-R Box 7 is T.  Should this be another code so that I do not get taxed or penalized?  The reason why I am asking is that experimenting in TurboTax by changing the code to N, P or G seems to give me the result that represents this situation.  I want to see if anyone knows before I call my plan administrator.

Thanks a lot!

[dmertz]

"Based on my Roth IRA 2022 Form 1099-R Box 7 is T."

This doesn't make any sense unless the distribution was to you as beneficiary of an inherited IRA.  Code T is only for  distributions received after you have reached age 59½, have become disabled or you are taking a distribution from an inherited IRA.  Because you had not yet reached age 59½ at the time of the distribution,  if the distribution is from your own Roth IRA, not an inherited Roth IRA, the correct code for this distribution is J and is likely the code on the Form 1099-R that you received.

Enter the Form 1099-R exactly as received, then indicate that you did not move the money to another retirement account.  (You "cashed it out.")  On the page that lists the Forms 1099-R that you have entered, click the continue button and proceed to where you can enter the amount of Roth IRA contributions you have made.  TurboTax will prepare Form 8606 to calculate that the taxable amount of this distribution is zero because you have distributed no more than your contribution basis.

Also, I assume that your total $29,000 of Roth IRA contributions was made over at least 5 years because the annual contributions have been limited to $5,500 or $6,000 in recent years.  I say this to make sure that you are not confusing a Roth 401(k) and its higher contribution limits with a Roth IRA.

[LindaS5247]

Code T is for Roth IRA distributions and the exception applies or to indicate that the penalty will not apply (i.e. you are over age 59 1/2 and have held the Roth IRA for over five years).

Per the Form 1099-R Instructions:

T—Roth IRA distribution, exception applies. Use Code T for a distribution from a Roth IRA if you do not know if the 5-year holding period has been met but: • The participant has reached age 591/2, • The participant died, or • The participant is disabled. Note. If any other code, such as 8 or P, applies, use Code J. 

Click here for the instructions for Form 10999-R. The distribution codes are on page 17.

It is possible that some or all of the distribution is taxable.  Be sure to click the Continue button on the Your 1099-R Entries page and answer all the follow-up questions to allow TurboTax to calculate the taxable amount of this distribution.

Indicate that you opened your Roth IRA more than 4 years prior to the beginning of the year in which you received the Roth IRA distribution. TurboTax asks this question after you click the Continue button on the Your 1099-R Entries page.

Make sure all of your entries are correct and that all follow-up questions have been answered.

If the problem persists, contact your Plan Administrator to confirm that the Form 1099-R is coded correctly. It may be that your Form 1099-R has been miscoded.

Code P is for excess contributions, which would not apply in your situation.

Code N is for a recharacterized IRA, which would not apply in your situation.

Code G is for a rollover to another qualified plan, which would not apply in your situation.

You can also click here to contact Turbo Tax for assistance.

[ajlee777]

Hi - thanks. 

... I assume that your total $29,000 of Roth IRA contributions was made over at least 5 years because the annual contributions have been limited to $5,500 or $6,000 in recent years.  I say this to make sure that you are not confusing a Roth 401(k) and its higher contribution limits with a Roth IRA.

I realize I have to explain further and looks like I complicated things.

• In 2020,
  • I contributed $7K to my Fidelity Roth IRA
  • I also contributed $22K to my employer's Empower Roth IRA
• In 2021, no contributions to either Roth IRAs
• In 2022,
  • I switched jobs and moved my $22K plus earnings from my employer's Empower Roth IRA to my Fidelity Roth IRA $7K plus earnings (now there is $29K of contribution in my Fidelity Roth IRA)
  • I closed my employer's Empower Roth IRA
  • I withdrew $29K from my Fidelity Roth IRA to pay for college and left earnings in the account
• In 2023, I received two 2022 Form 1099-R's
  • Empower Box 1 $25K, Box 2a $3K, Box 4 $600, Box 5, $22K, Box 7 of B2
  • Fidelity Box 1 $29K, Box 2b Taxable amount not determined (X), Box 7 of T

Looks like for the Fidelity 1099-R, I should not have a Box 7 of T but a Box 7 of J Early Distribution from a Roth IRA.  

How about the second code of Box 7 second box of 8 Return of contribution 2022?

[dmertz]

The employer plan (Empower) is not any kind of IRA.  It is a 401(k).  A 401(k) is not an IRA.

The code B2 Form 1099-R indicates a distribution paid to you from the designated Roth account in the 401(k) before you reached age 59½.  When entering this code B2 Form 1099-R you must, if TurboTax asks, indicate that this distribution was not from a Roth IRA.  Indicate that you moved the money to another retirement account, that you rolled this money over and that you rolled all of it over to a Roth IRA.  The amount in box 5 represents the amount of contribution basis in the designated Roth account that becomes contribution basis in your Roth IRA upon rollover.

The code T Form 1099-R indicates that your distribution from the Roth IRA occurred after age 59½.  Be sure to click the Continue button on the page that lists the Forms 1099-R that you have entered and answer any additional questions, particularly whether or not you made a Roth contribution for any year prior to 2018.  If your first Roth IRA contribution was for some year after 2018 (perhaps the one for 2020 was your first), TurboTax will prepare Form 8606 Part III to calculate that the taxable amount of your Roth IRA distribution was zero.

Do not change any of the codes.  You must enter the codes as they are shown on the Forms 1099-R provided by Empower and Fidelity.