Roth IRA early distribution question

[michaelcottier]

Hi! If I paid taxes on an early roth IRA distribution when I didn't need to, how can I get it back when I file my taxes next year?

[rjs · Accepted solution]

What exactly do you mean by "I paid taxes"? Do you mean that you took the distribution in 2024 and you had tax withheld from the distribution? If that's what you mean, in January you will get a Form 1099-R for the distribution, and it will show the amount of tax that was withheld. When you prepare your 2024 tax return, just enter the 1099-R in TurboTax. The tax that was withheld will be included in the total tax withheld on your tax return. The total tax withheld will be applied to your total tax for the year. If the tax withheld is more than your total tax, you will get a refund for the excess.

If that's not what you mean, please explain exactly how and when you "paid taxes," and when you took the distribution.

[michaelcottier]

Ok I see! Yes that is what I meant, but won't it count the distribution itself as taxable still, even though it isn't? Because that is why I shouldn't have paid taxes on it! The amount was under my contribution total, so it isn't taxable. Maybe TurboTax will ask if it is taxable or not?

[dmertz]

Whether taxable or not, the distribution must be represented on your tax return.  If you received a nonqualified distribution (before age 59½ or it had been less than 5 years since the beginning of the year for which you first made a Roth IRA contribution), TurboTax will include the gross amount of the distribution on Form 8606 Part III to determine the taxable amount of the distribution by subtracting contribution basis and conversion basis.  IF the distribution is a qualified distribution, the distribution is automatically nontaxable and no Form 8606 Part III is to be prepared.  Either way, TurboTax will include the gross amount on Form 1040 line 4a but exclude the nontaxable amount from line 4b.

[michaelcottier]

Ok so the IRS will know the total amount of contributions that I made to the Roth IRA since it first started? Because that is what determines if it is taxable or not.

Also, I found the information below here: https://www.irs.gov/help/ita/is-the-distribution-from-my-roth-account-taxable

For a Roth IRA distribution:

- Whether or not you have a cost basis to recover. Your basis is the amount of contributions in your Roth IRAs.
- The year a Roth IRA was first established for your benefit.

[dmertz]

Although the IRS can know from the Forms 5498 filed by your Roth IRA custodian the amount of your contributions, it's your responsibility to tack those for inclusion on Form 8606.  If you have been using TurboTax over the years, you should have been entering your Roth IRA contributions so that TurboTax can track those for you.  Otherwise, you'll need to tell 2024 TurboTax the amount of your contributions made for years prior to 2024 and separately enter any contributions that you made for 2024 so that TurboTax will have the information needed to prepare Form 8606 Part III.

[michaelcottier]

Awesome! Thank you for all of your help 🙂

[Opus 17]

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@michaelcottier wrote:

Awesome! Thank you for all of your help 🙂

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Essentially, you have to keep track of your Roth contributions.  

When you enter the 1099-R, it will show the withdrawal and the withholding.  Turbotax will ask you for the total of your contributions and previous withdrawals.  Assuming the math works out so that the current withdrawal is all considered from contributions, it won't be taxable, and the withholding will go to your overall credit.  If your total payments and withholding is less than your total tax, you get a refund.

The 1099-R from the custodian might or might not have an indication of how much is taxable, but it is really down to your own record keeping.  The IRS might or might not do some computer matching and catch you if you get it wrong, but there is some indication they don't do this routinely.